<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DISCOVERY PARTNERS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA
(PRIOR TO REINCORPORATION)
DELAWARE
(AFTER REINCORPORATION) 8731 33-0655706
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
9640 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(858) 455-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. RICCARDO PIGLIUCCI
CHIEF EXECUTIVE OFFICER
DISCOVERY PARTNERS INTERNATIONAL, INC.
9640 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(858) 455-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
HAYDEN J. TRUBITT, ESQ. L. KAY CHANDLER, ESQ.
KIRT W. SHULDBERG, ESQ. JANE K. ADAMS, ESQ.
BROBECK, PHLEGER & HARRISON LLP COOLEY GODWARD LLP
12390 EL CAMINO REAL 4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CALIFORNIA 92130 SAN DIEGO, CALIFORNIA 92121
(858) 720-2500 (858) 550-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration 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,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.001 per share.................... $115,000,000 $30,360
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 9, 2000
PROSPECTUS
SHARES
[DISCOVERY PARTNERS LOGO]
COMMON STOCK
This is an initial public offering of common stock by Discovery Partners
International, Inc. The estimated initial public offering price is between
$ and $ per share.
------------------
We have applied for listing of our common stock on the Nasdaq National
Market under the symbol DPII.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Discovery Partners International, Inc., before
expenses.................................................. $ $
</TABLE>
Discovery Partners International, Inc. has granted the underwriters an
option for a period of 30 days to purchase up to additional shares of
common stock.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CHASE H&Q LEHMAN BROTHERS
UBS WARBURG LLC
, 2000
<PAGE> 3
[INSIDE FRONT COVER:]
[DISCOVERY PARTNERS TITLE AND LOGO]
[Logos of each business group -- IRORI, ChemRx Advanced Technologies,
Discovery Technologies and Structural Proteomics]
[Depiction of a three-tiered pyramid designed to illustrate in brief our
products, services and expertise. The top tier of the pyramid has an external
caption entitled "Knowledge", and inside this tier is the language "Structure
Activity Relationships (SAR)". The middle tier of the triangle has an external
caption entitled "Services" and is broken into two sections: "Compound
Libraries" and "Assay Development and High Throughput Screening". The bottom
tier of the pyramid has an external caption entitled "Products and Technology"
and is broken into five sections: "Directed Sorting", "Validated Chemistry
Protocols", "Drug Discovery Informatics", "Assay Development" and "HTS
Factory".]
[FRONT GATEFOLD:]
[Depiction of our integrated services and products for the drug discovery
process from "Drug Targets" (and accompanying graphic) to "Drug Candidates" (and
accompanying graphic). The centerpiece of this page is a graphic of a segmented
funnel that commences with two independent segments entitled "Assays" and
"Compound Libraries" which channel into the following consecutive segments:
"Screening" to "Hits-to-Optimized Leads" to "ADME Toxicology". There are an
aggregate of eight graphics with accompanying text, split equally between the
top and bottom of the page, which briefly describe the products and services
offered under each segment of the funnel graphic (except for ADME Toxicology).]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 26
Management.................................................. 41
Related Party Transactions.................................. 53
Principal Stockholders...................................... 59
Description of Capital Stock................................ 61
Shares Eligible for Future Sales............................ 66
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find More Information......................... 70
Index to Consolidated Financial Statements.................. F-1
</TABLE>
We own a registered trademark and service mark in IRORI(R). We have filed an
application for federal registration and claim rights in HTS-FACTORY(TM). This
prospectus also includes trademarks owned by other parties.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" on page 5 and our consolidated
financial statements and notes to those consolidated financial statements on
page F-1, before making an investment decision.
We sell a broad range of products and services to pharmaceutical and
biotechnology companies to make the drug discovery process for our customers
faster, less expensive and more effective at generating drug candidates. We
focus on the portion of the drug discovery process after identification of a
drug target through when a drug candidate is ready for clinical trials. We
develop and sell libraries of drug-like compounds, proprietary instruments,
consumables and computational tools to generate compound libraries, and test,
screen and optimize potential drugs. We intend to continue to aggressively grow
our company through internal development and acquisition of other companies to
expand our range of offerings and implement leading-edge technologies. We
recently acquired three businesses: Axys Advanced Technologies, Discovery
Technologies and Structural Proteomics. We generated more than $10.5 million in
revenues on a combined pro forma basis during the first quarter of 2000. Since
inception in 1995, we have sold products to and conducted projects for over 100
customers, including Aventis, Bayer, Bristol-Myers Squibb, SmithKline Beecham
and Warner-Lambert.
The pharmaceutical industry is under intense pressure to develop new drugs
and has increased research and development expenditures over five-fold since
1985. Recent advances in genomics and proteomics, the studies of genes and the
proteins they encode, have led to a dramatic increase in the number of potential
drug targets that can be advanced into drug discovery. We believe there is a
lack of resources and a need for better tools and technologies to generate drug
candidates from these targets. Additionally, the pharmaceutical industry needs
better information earlier in the drug discovery process to avoid large
expenditures on compounds that ultimately fail in later testing. Despite recent
advances, the drug discovery process remains lengthy, expensive and often
unsuccessful.
The broad array of products and technologies that we have assembled allows
our pharmaceutical and biotechnology customers to augment their internal
capabilities and accelerate the discovery of drug candidates. For example, in
our chemistry offering, our Directed Sorting technology allows our customers to
generate with efficiency and speed large libraries of discrete compounds, with
large amounts of each compound. In addition, we generate and sell chemically-
diverse libraries of discrete, drug-like compounds that have validated chemistry
protocols which make them easy to re-supply and reproduce.
We offer products and services in many of the functional disciplines of
drug discovery. In our assay development and screening services group, we design
and conduct tests that generate information about the activity of compounds
against a drug target. We have performed approximately 60 assay development and
screening projects. Once an assay, or test, is developed, it is used to screen
compound libraries. We sell patented instruments, based on our Directed Sorting
technology, to enable our customers to generate compound libraries, and we also
sell proprietary libraries of drug-like compounds. Our NanoKan System is
designed to generate up to one million discrete compounds per year. After
compounds are screened, our medicinal chemists can synthesize variations of
promising compounds for lead development and optimization to generate drug
candidates. In addition, we use computational tools to assist in the design of
compound libraries and are developing other tools to provide predictive
information earlier in the drug discovery process to reduce time and cost.
1
<PAGE> 6
Our objective is to create and commercialize a complete, integrated and
highly efficient drug discovery platform to overcome many limitations of the
current drug discovery process. To implement this objective, we intend to:
- offer an integrated and complete drug discovery solution from drug target
to drug candidate
- broaden and deepen our technology through internal invention and
acquisition
- target the pharmaceutical and biotechnology industries
- expand customer relationships through integration of products and
services
- generate multiple revenue streams
- expand our knowledge base
We maintain Web sites at www.discoverypartners.com, www.axystech.com,
www.chemrx.com, www.discovery-tech.com and www.irori.com. Information contained
in our Web sites does not constitute a part of this prospectus. Our principal
executive offices are located at 9640 Towne Centre Drive, San Diego, California
92121, and our telephone number is (858) 455-8600.
2
<PAGE> 7
THE OFFERING
Common stock we are offering..... shares
Common stock to be outstanding
after this offering.............. shares
Use of proceeds.................. To fund our operations, including continued
development and manufacturing of existing products as well as research and
development of additional products and
services. We also may use a portion of the
net proceeds to acquire new businesses or
technologies, hire additional personnel and
expand our facilities to be able to meet
the growing needs of our business.
Proposed Nasdaq National Market
symbol......................... DPII
-------------------------
The share amounts in this table are based on shares outstanding as of May
5, 2000. This table excludes:
- 1,867,847 shares of common stock issuable upon the exercise of options
outstanding at a weighted average exercise price of $2.50 per share;
- 905,294 shares of common stock issuable upon the exercise of warrants at
a weighted average exercise price of $3.60 per share, of which warrants
to purchase 670,209 shares will expire if not exercised at the time of
this offering; and
- 1,432,153 additional shares of common stock available for future grant
under our 2000 Stock Incentive Plan to become effective at the close of
this offering.
-------------------------
Unless otherwise noted, the information in this prospectus:
- assumes that the underwriters' over-allotment option will not be
exercised;
- gives effect to the conversion, at the closing of this offering, of all
7,954,781 outstanding shares of preferred stock into 8,016,412 shares of
common stock; and
- reflects our reincorporation into Delaware before the completion of this
offering.
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -----------------------------
1997 1998 1999 1999 1999 2000 2000
------- ------- ------- -------- -------- ------- --------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenue................................ $ 3,150 $ 6,214 $13,076 $27,050 $2,896 $ 5,173 $10,513
Gross margin........................... 1,838 3,428 4,841 15,093 1,133 2,120 6,268
Costs and expenses
Research and development............. 4,143 5,058 3,539 8,959 969 619 2,183
Selling, general and
administrative.................... 2,528 4,984 4,439 6,418 1,093 1,519 2,169
Amortization of deferred
compensation...................... -- -- 311 311 70 264 264
Amortization of goodwill............. -- -- -- 3,279 -- 155 975
Total operating expenses........ 6,671 10,042 8,288 18,967 2,132 2,557 5,591
Income (loss) from operations.......... (4,833) (6,614) (3,447) (3,874) (999) (437) 677
Net loss............................. $(4,822) $(6,278) $(3,370) $(3,853) $ (973) $(1,630) $ (983)
======= ======= ======= ======= ====== ======= =======
Net loss per share, basic and
diluted........................... $ (8.85) $ (8.20) $ (3.00) $(0.96) $ (1.23)
======= ======= ======= ====== =======
Shares used in calculating net loss per
share, basic and diluted............. 545 765 1,125 1,014 1,324
Pro forma net loss per share, basic
and diluted....................... $ (0.44) $ (.25) $ (0.21) $ (.06)
======= ======= ======= =======
Shares used in calculating pro forma
net loss per share, basic and
diluted........................... 7,729 15,158 7,939 15,368
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------------------
AS OF DECEMBER 31, PRO FORMA
------------------------------ AS ADJUSTED
1997 1998 1999 ACTUAL PRO FORMA(2) (3)
-------- -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED BALANCE SHEET
DATA
Cash and cash equivalents......... $ 281 $ 10,715 $ 2,885 $ 984 $ 5,994 $
Working capital (deficit)......... 949 8,976 (3,663) (3,950) 16,337
Total assets...................... 3,831 16,596 21,652 21,750 76,395
Long term debt.................... 322 96 1,910 2,505 2,505 2,505
Redeemable preferred stock........ 11,890 27,907 27,907 27,907 -- --
Total stockholders' equity
(deficit)...................... (10,035) (16,298) (19,269) (19,561) 39,224
</TABLE>
- ------------------------------
(1) The Pro Forma consolidated statement of operations for the year ended
December 31, 1999 and the three months ended March 31, 2000 assumes that we
purchased Axys Advanced Technologies, Inc. as of the beginning of each of
those periods and is based on our historical operating results and those of
AAT for the periods presented, giving effect to the amortization of
intangible assets related to the acquisition.
(2) The Pro Forma consolidated balance sheet data gives effect to the sale of
1,392,503 shares of Series E Preferred Stock in April, 2000, the issuance of
7,429,641 shares of common stock, and promissory note for $550,000 and
$50,000 cash for the purchase of AAT in April, 2000, and the conversion of
all of our outstanding shares of redeemable preferred stock into common
stock upon the closing of this offering.
(3) The Pro Forma As Adjusted consolidated balance sheet gives effect to the
sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses that we will pay.
Please see Note 2 to our financial statements for an explanation of the method
used to calculate the net loss per share and the number of shares used in the
computation of per share amounts.
4
<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below together with all
of the other information included in this prospectus before making an investment
decision. If any of the following risks actually occurs, our business, financial
condition or results of operations could be harmed. In such an event, the
trading price of our common stock could decline, and you may lose all or part of
your investment.
RISKS RELATED TO OUR BUSINESS
IF OUR PRODUCTS AND SERVICES DO NOT BECOME WIDELY USED IN THE PHARMACEUTICAL AND
BIOTECHNOLOGY INDUSTRIES, IT IS UNLIKELY THAT WE WILL BE PROFITABLE.
Compared to other technologies, our technology is new and unproven, and the
use of our technology by pharmaceutical and biotechnology companies is limited.
In addition, we have a limited history of offering our products and services,
including our NanoKan System, informatics tools and combinatorial chemistry
libraries. It is uncertain whether our current customers will continue to use
these products and services or whether new customers will use these products and
services. In order to be successful, our products and services must meet the
requirements of the pharmaceutical and biotechnology industries, and we must
convince potential customers to use our products and services instead of
competing technologies. Market acceptance will depend on many factors, including
our ability to:
- convince potential customers that our technologies are attractive
alternatives to other technologies for drug discovery;
- manufacture products and conduct services in sufficient quantities with
acceptable quality and at an acceptable cost;
- convince potential customers to purchase drug discovery products and
services from us rather than developing them internally; and
- place and service sufficient quantities of our products.
Because of these and other factors, our products and services may not gain
market acceptance.
WE RECENTLY HAVE ACQUIRED SEVERAL BUSINESSES AND FACE RISKS ASSOCIATED WITH
INTEGRATING THESE BUSINESSES AND POTENTIAL FUTURE ACQUISITIONS.
We recently completed the acquisitions of Axys Advanced Technologies (AAT),
Discovery Technologies and Structural Proteomics, and are in the process of
integrating these businesses. We plan to continue to review potential
acquisition candidates in the ordinary course of our business. Acquisitions
involve numerous risks, including among others, difficulties and expenses
incurred in the consummation of acquisitions and assimilation of the operations,
personnel and services or products of the acquired companies, difficulties of
operating a new businesses, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
company. If we do not successfully integrate the three businesses we recently
acquired or any businesses we may acquire in the future, our business will
suffer. Additionally, acquisition candidates may not be available in the future
or may not be available on terms and conditions acceptable to us. Acquisitions
of foreign companies also may involve additional risks of assimilating different
business practices, overcoming language and cultural barriers and foreign
currency translation. We currently have no agreements or commitments with
respect to any acquisition and we may never successfully complete any additional
acquisitions.
5
<PAGE> 10
WE MAY FAIL TO EXPAND CUSTOMER RELATIONSHIPS THROUGH INTEGRATION OF PRODUCTS AND
SERVICES.
We may not be successful in selling our offerings in combination across the
range of drug discovery disciplines we serve because integrated combinations of
our products and services may not achieve time and cost efficiencies for our
customers. In addition, we may not succeed in further integrating our offerings.
We may not be able to use existing relationships with customers in individual
areas of our business to sell products and services in multiple areas of drug
discovery. If we do not achieve integration of our products and services, we may
not be able to take advantage of potential revenue opportunities.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO MANAGE RAPID GROWTH AND EXPANSION.
Growth in our operations has placed and will continue to place a
significant strain on our operational, human and financial resources. It is also
possible that we may not experience any future growth. Our ability to compete
effectively will depend, in large part, on our ability to hire, train and
assimilate additional management, professional, scientific and technical
personnel and our ability to expand, improve and effectively use our operating,
management, marketing and financial systems to accommodate our expanded
operations. The physical expansion of our facilities to accommodate future
growth may lead to significant costs and divert management and business
development resources. If we fail effectively to anticipate, implement and
manage the changes required to sustain our growth, we may not be able to compete
successfully.
OUR DIRECTED SORTING PRODUCTS AND OUR LARGE COMPOUND LIBRARIES HAVE LENGTHY
SALES CYCLES, WHICH COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE
SIGNIFICANTLY FROM QUARTER TO QUARTER.
Sales of our Directed Sorting products and our large compound libraries
typically involve significant technical evaluation and commitment of capital by
our customers. Accordingly, the sales cycles associated with these products are
expected to be lengthy and subject to a number of significant risks, including
customers' budgetary constraints and internal acceptance reviews that are beyond
our control. Due to these lengthy and unpredictable sales cycles, our operating
results could fluctuate significantly from quarter to quarter. We expect to
continue to experience significant fluctuations in quarterly operating results
as a result of a variety of factors, such as general and industry specific
economic conditions which may affect the research and development expenditures
of pharmaceutical and biotechnology companies.
A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed. Accordingly, if revenues decline
or do not grow as anticipated, we might not be able to correspondingly reduce
our operating expenses. Failure to achieve anticipated levels of revenues could
therefore significantly harm our operating results for a particular fiscal
period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline.
WE DEPEND ON THIRD-PARTY PRODUCTS AND SERVICES AND SOLE OR LIMITED SOURCES OF
SUPPLY TO MANUFACTURE SOME COMPONENTS OF OUR DIRECTED SORTING PRODUCTS.
We rely on outside vendors to manufacture many of the components and
subassemblies used in our Directed Sorting products. Some of these components
and subassemblies are obtained from a
6
<PAGE> 11
single supplier or a limited group of suppliers. Our reliance on outside vendors
generally, and a sole or a limited group of suppliers in particular, involves
several risks, including:
- the inability to obtain an adequate supply of required components due to
manufacturing capacity constraints, a discontinuance of a product by a
third-party manufacturer or other supply constraints;
- reduced control over quality and pricing of components; and
- delays and long lead times in receiving materials from vendors.
WE HAVE NOT YET DELIVERED OUR NANOKAN SYSTEM, AND WE FACE RESTRICTIONS ON OUR
ABILITY TO SELL THIS PRODUCT TO ADDITIONAL CUSTOMERS.
We have not yet delivered our NanoKan System which we currently are
developing for sale to Bristol-Myers Squibb and Aventis. We may not be able to
successfully complete development of the NanoKan System and, after development,
it may not meet our customers' expectations. Further, under agreements with
Bristol-Myers Squibb and Aventis, we are prohibited from delivering the NanoKan
System to any additional customers until one year following the delivery of both
systems to Bristol-Myers Squibb and Aventis. We expect to deliver both systems
in 2000; however, delivery may be delayed beyond 2000 due to factors beyond our
control, such as unexpected development problems or natural disasters. If
delivery to Bristol-Myers Squibb or Aventis is delayed, we will not be able to
deliver additional NanoKan Systems for a longer period of time and our results
of operations may be adversely affected.
OUR CUSTOMERS MAY RESTRICT OUR USE OF SCIENTIFIC INFORMATION.
We plan to generate and use information that is not proprietary to our
customers and that we derive from performing drug discovery services for our
customers. However, our customers may not allow us to use information such as
the general interaction between types of chemistries and types of drug targets
that we generate when performing drug discovery services for them. Without this
information, we may not be able to develop an informatics database and may not
be able to take advantage of potential revenue opportunities.
WE MAY NOT ACHIEVE OR SUSTAIN PROFITABILITY IN THE FUTURE.
We are at an early stage of executing our business plan. We have incurred
operating and net losses and negative cash flow from operations since our
inception. As of March 31, 2000, we had an accumulated deficit of $21,362,810.
For the years ended December 31, 1997, 1998 and 1999 and the three months ended
March 31, 2000, we had net losses of $4,822,019, $6,277,513, $3,370,364, and
$1,630,381, respectively. We may also in the future incur operating and net
losses and negative cash flow from operations, due in part to anticipated
increases in expenses for research and product development, acquisitions of
complementary businesses and technologies and expansion of our sales and
marketing capabilities. Given our acquisition strategy, we expect significant
goodwill charges to affect our net income (loss) for the foreseeable future. We
may not be able to achieve or maintain profitability. Moreover, if we do achieve
profitability, the level of any profitability cannot be predicted and may vary
significantly from quarter to quarter.
OUR OPERATIONS COULD BE INTERRUPTED BY DAMAGE TO OUR FACILITIES.
Our results of operations are dependent upon the continued use of our
highly specialized laboratories and equipment. Our operations are primarily
concentrated in facilities in San Diego, California and near San Francisco,
California and Basel, Switzerland. Natural disasters, such as earthquakes, could
damage our laboratories or equipment and these events may materially interrupt
our business. We maintain business interruption insurance to cover lost revenues
caused by such
7
<PAGE> 12
occurrences. However, this insurance would not compensate us for the loss of
opportunity and potential adverse impact on relations with existing customers
created by an inability to meet our customers' needs in a timely manner.
WE MAY LOSE MONEY WHEN WE EXCHANGE FOREIGN CURRENCY USED IN INTERNATIONAL
TRANSACTIONS INTO U.S. DOLLARS.
A portion of our business is conducted in currencies other than the U.S.
dollar, including the British pound and the Swiss franc. As a result, currency
fluctuations between the U.S. dollar and the currencies in which we do business
will cause foreign currency translation gains and losses. We cannot predict the
effects of exchange rate fluctuations on our future operating results because of
the number of currencies involved, the variability of currency exposure and the
potential volatility of currency exchange rates. We do not currently engage in
foreign exchange hedging transactions to manage our foreign currency exposure.
RISKS RELATED TO OPERATING IN OUR INDUSTRY
THE CONCENTRATION OF THE PHARMACEUTICAL INDUSTRY AND THE CURRENT TREND TOWARD
INCREASING CONSOLIDATION COULD HURT OUR BUSINESS PROSPECTS.
The market for our products and services is highly concentrated, with
approximately 50 large pharmaceutical companies conducting drug discovery
research. The number of our potential customers could be reduced even further if
the current trend toward consolidation of the pharmaceutical industry continues.
Accordingly, we expect that a relatively small number of customers will account
for a substantial portion of our revenues. Before our recent acquisitions of
AAT, Discovery Technologies and Structural Proteomics, in 1999 our net revenue
from our three largest customers represented approximately 22%, 20% and 7% of
total net revenue, respectively.
Additional risks associated with a highly concentrated customer base
include:
- fewer customers for our products and services;
- larger companies may develop in-house technology and expertise rather
than using our products and services;
- larger customers may negotiate price discounts or other terms for our
products and services that are unfavorable to us; and
- the market for our products and services may become saturated.
For example, because of the heavy concentration of the pharmaceutical
industry and the high cost of our NanoKan System, we expect to sell only a small
number of NanoKan Systems before the market for this product is saturated. When
we are no longer able to sell additional NanoKan Systems, we will be dependent
upon the sale of consumables for revenue from this product line.
THE DRUG DISCOVERY INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID
TECHNOLOGICAL CHANGE, AND WE MAY NOT HAVE THE RESOURCES NECESSARY TO
COMPETE SUCCESSFULLY.
We compete with companies in the United States and abroad that are engaged
in the development and production of drug discovery products and services,
including pharmaceutical companies, biotechnology companies, combinatorial
chemistry companies and contract research companies. Academic institutions,
governmental agencies and other research organizations also are conducting
research in areas in which we provide services, either on their own or through
collaborative efforts. Also, in many cases, our pharmaceutical company customers
have internal departments which provide products and services similar to ours,
so these customers may have
8
<PAGE> 13
limited needs for our products and services. Many of our competitors have access
to greater financial, technical, research, marketing, sales, distribution,
service and other resources than we do.
Moreover, the pharmaceutical and biotechnology industries are characterized
by rapid and continuous technological innovation. We anticipate that we will
face increased competition in the future as new companies enter the market and
advanced technologies become available. Our products, services and expertise may
be rendered obsolete or uneconomical by technological advances or entirely
different approaches developed by us or one or more of our competitors. For
example, advances in informatics and virtual screening may render some of our
technologies, such as our large compound libraries, obsolete. Additionally, the
existing approaches of our competitors or new approaches or technologies
developed by our competitors may be more effective than those we develop. We may
not be able to compete successfully with existing or future competitors.
OUR SUCCESS WILL DEPEND ON THE PROSPECTS OF THE PHARMACEUTICAL AND BIOTECHNOLOGY
INDUSTRIES AND THE EXTENT TO WHICH THESE INDUSTRIES USE THIRD-PARTY
ASSISTANCE WITH ONE OR MORE ASPECTS OF THEIR DRUG DISCOVERY PROCESS.
Our revenues are highly dependent on research and development expenditures
by the pharmaceutical, biotechnology and agricultural industries and outsourcing
of research and development projects by companies in these industries. These
expenditures are based on a wide variety of factors, including the resources
available for purchasing research equipment, the spending priorities among
various types of research and policies regarding expenditures during
recessionary periods. Our operations could be materially adversely affected by
general economic downturns in our customers' industries or any decrease in
research and development expenditures. Any decrease in drug discovery spending
by pharmaceutical and biotechnology companies could cause our revenues to
decline and adversely impact our profitability.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN EXPERIENCED
SCIENTISTS AND SALES PERSONNEL.
Our future success will depend to a significant extent on our ability to
attract, retain and motivate highly skilled scientists and sales personnel. Our
ability to maintain, expand or renew existing engagements with our customers,
enter into new engagements and provide additional services to our existing
customers depends, in large part, on our ability to hire and retain scientists
with the skills necessary to keep pace with continuing changes in drug discovery
technologies and sales personnel who are highly motivated. Our employees are "at
will" which means that they may resign at any time, and we may dismiss them at
any time. We believe that there is a shortage of, and significant competition
for, scientists with the skills and experience in the sciences necessary to
perform the services we offer. We compete with pharmaceutical companies,
biotechnology companies, combinatorial chemistry companies, contract research
companies and academic institutions for new personnel. In addition, our
inability to hire additional qualified personnel may require an increase in the
workload for both existing and new personnel. We may not be successful in
attracting new scientists or sales personnel or in retaining or motivating our
existing personnel.
THE INTELLECTUAL PROPERTY RIGHTS WE RELY ON TO PROTECT THE TECHNOLOGY UNDERLYING
OUR PRODUCTS AND TECHNIQUES MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD
PARTIES TO USE OUR TECHNOLOGY OR VERY SIMILAR TECHNOLOGY AND COULD REDUCE
OUR ABILITY TO COMPETE IN THE MARKET.
Our success will depend on our ability to obtain, protect and enforce
patents on our technology and to protect our trade secrets. We also depend, in
part, on patent rights licensed to us from third parties. Any patents we own or
license may not afford meaningful protection for our technology and products.
Others may challenge our patents or the patents of our licensors and, as a
result, these patents could be narrowed, invalidated or rendered unenforceable.
In addition, current and future patent applications on which we depend may not
result in the issuance of patents in the
9
<PAGE> 14
United States or foreign countries. Competitors may develop products similar to
ours which are not covered by our patents. Further, since there is a substantial
backlog of patent applications at the U.S. Patent and Trademark Office, the
approval or rejection of our or our competitors' patent applications may take
several years.
In addition to patent protection, we also rely on copyright protection,
trade secrets, know-how, continuing technological innovation and licensing
opportunities. In an effort to maintain the confidentiality and ownership of our
trade secrets and proprietary information, we require our employees, consultants
and advisors to execute confidentiality and proprietary information agreements.
However, these agreements may not provide us with adequate protection against
improper use or disclosure of confidential information and there may not be
adequate remedies in the event of unauthorized use or disclosure. Furthermore,
like many technology companies, we may from time to time hire scientific
personnel formerly employed by other companies involved in one or more areas
similar to the activities conducted by us. In some situations, our
confidentiality and proprietary information agreements may conflict with, or be
subject to, the rights of third parties with whom our employees, consultants or
advisors have prior employment or consulting relationships. Although we require
our employees and consultants to maintain the confidentiality of all
confidential information of previous employers, we or these individuals may be
subject to allegations of trade secret misappropriation or other similar claims
as a result of their prior affiliations. Finally, others may independently
develop substantially equivalent proprietary information and techniques, or
otherwise gain access to our trade secrets. Our failure to protect our
proprietary information and techniques may inhibit or limit our ability to
exclude certain competitors from the market.
THE DRUG DISCOVERY INDUSTRY HAS A HISTORY OF INTELLECTUAL PROPERTY LITIGATION
AND WE MAY BE INVOLVED IN INTELLECTUAL PROPERTY LAWSUITS, WHICH MAY BE
EXPENSIVE.
The drug discovery industry has a history of patent and other intellectual
property litigation and will likely continue to have patent lawsuits concerning
drug discovery technologies. In order to protect or enforce our patent rights,
we may have to initiate legal proceedings against third parties. In addition, we
may be sued by others for infringing their intellectual property rights or we
may find it necessary to initiate a lawsuit seeking a declaration from a court
that we do not infringe the proprietary rights of others. The patent positions
of pharmaceutical, biotechnology and drug discovery companies are generally
uncertain and involve complex legal and factual questions. No consistent policy
has emerged from the U.S. Patent and Trademark Office or the courts regarding
the breadth of claims allowed or the degree of protection afforded under patents
like those we own. Legal proceedings relating to intellectual property would be
expensive, take significant time and divert management's attention from other
business concerns, no matter whether we win or lose. The cost of such litigation
could affect our profitability.
Further, if we do not prevail in infringement lawsuit brought against us,
in addition to any damages we might have to pay, we could be required to stop
the infringing activity or obtain a license. Any required license may not be
available to us on acceptable terms, or at all. In addition, some licenses may
be nonexclusive, and therefore, our competitors may have access to the same
technology licensed to us. If we fail to obtain a required license or are unable
to design around a patent, we may be unable to sell some of our products or
services.
WE MAY BE SUBJECT TO LIABILITY REGARDING HAZARDOUS MATERIALS.
Our products and services as well as our research and development processes
involve the controlled use of hazardous materials. We are subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. The risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
10
<PAGE> 15
damages that result, and any such liability could exceed our resources and
disrupt our business. In addition, we may have to incur significant costs to
comply with environmental laws and regulations related to the handling or
disposal of such materials or waste products in the future, which would require
us to spend substantial amounts of money.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE LIKELY WILL BE HIGHLY VOLATILE, AND YOUR INVESTMENT COULD
DECLINE IN VALUE.
The trading price of our common stock likely will be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations by us or our competitors;
- new products or services introduced or announced by us or our
competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the pharmaceutical and biotechnology industries;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- economic and political factors; and
- sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market
and the market for technology companies in particular, have experienced
significant price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further, there
has been particular volatility in the market prices of securities of life
sciences companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in potential liabilities,
substantial costs and the diversion of management's attention and resources,
regardless of whether we win or lose.
WE MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY
NOT AGREE.
We have not yet determined the allocation of the proceeds from this
offering, and we will retain broad discretion over the use of the proceeds. You
may not agree with how we spend the proceeds, and our use of the proceeds may
not yield a significant return or any return at all. For example, we may use the
proceeds to acquire new businesses or technologies which are unproven and may
not ultimately generate revenue for us.
THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.
Prior to this offering, there has been no public market for our common
stock. There may not be an active trading market for our common stock following
this offering. You may not be able to sell your shares quickly or at the market
price if trading in our stock is not active. The initial public
11
<PAGE> 16
offering price will be determined by negotiations between us and representatives
of the underwriters based upon a number of factors. The initial public offering
price may not be indicative of prices that will prevail in the trading market.
The market price of our common stock may decline below the initial public
offering price and you may not be able to resell your shares at or above the
initial offering price.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A LARGE
PERCENTAGE OF OUR VOTING STOCK AND COULD DELAY OR PREVENT A CHANGE IN OUR
CORPORATE CONTROL OR OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL, EVEN IF
FAVORED BY OUR OTHER STOCKHOLDERS.
Immediately after this offering, our executive officers, directors and
principal stockholders, and their respective affiliates, will beneficially own
approximately % of our outstanding common stock. These stockholders, if
acting together, would be able to control substantially all matters requiring
approval by our stockholders, including the election of all directors and
approval of significant corporate transactions. We have agreed to include, as
director nominees, a number of nominees of Axys Pharmaceuticals, Inc. which is
proportionate to Axys' percentage ownership of our shares. Axys Pharmaceuticals,
Inc., which immediately after this offering will own approximately % of our
common stock, has agreed to vote all its stock in favor of management's annual
slates of director nominees.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be shares of common stock
outstanding immediately after this offering, or shares if the
underwriters exercise their over-allotment option in full, based on the number
of shares outstanding at May 5, 2000. All of the shares sold in the offering
will be freely transferable without restriction or further registration under
the Securities Act, except for any shares purchased by our "affiliates," as
defined in Rule 144 of the Securities Act. The remaining 17,437,204 shares of
common stock outstanding will be "restricted securities" as defined in Rule 144,
of which 8,465,060 shares will be available for sale, subject to Rule 144,
immediately following the expiration of the 180 day lock-up period. These shares
may be sold in the future without registration under the Securities Act to the
extent permitted by Rule 144 or other exemptions under the Securities Act.
After this offering, we intend to register approximately 3,300,000 shares
of common stock which are reserved for issuance upon exercise of options granted
or reserved for grant under our stock option plans. Once we register these
shares, they can be sold in the public market upon issuance, subject to
restrictions under the securities laws applicable to resales by affiliates.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price of our common stock is expected to be
substantially higher than the net tangible book value per share of our common
stock. Therefore, if you purchase shares of our common stock in this offering,
you will incur immediate and substantial dilution of approximately $ in
the pro forma net tangible book value per share of common stock from the price
per share that you pay for the common stock (based upon an assumed initial
public offering price of $ per share). If the holders of outstanding options
or warrants exercise those options or warrants at prices below the initial
public offering price, you will incur further dilution.
12
<PAGE> 17
IF WE NEED BUT ARE UNABLE TO OBTAIN ADDITIONAL FUNDING TO SUPPORT OUR
OPERATIONS, WE WOULD HAVE TO REDUCE OR CEASE OPERATIONS OR ATTEMPT TO SELL
ALL OR A PART OF OUR OPERATIONS.
We may need substantial funds to continue to research, develop and enhance
our technologies. To the extent that our capital resources are insufficient to
meet future capital requirements, we will have to raise additional funds to
continue the development of our technologies. We may not be able to raise funds
on favorable terms, if at all. Our current operating plan could change as a
result of many factors, and we could require additional funding sooner than
anticipated. Our requirements for additional capital may be substantial and will
depend on many factors, some of which are beyond our control, including:
- market acceptance of our products and services;
- continued progress of our research and development of our products and
services;
- acquisitions of other companies in exchange for cash, and the capital
needs of any acquired companies;
- competing technological and market developments;
- the cost of protection of patent and other intellectual property rights;
or
- further development of production, marketing and sales capabilities.
To the extent that we raise additional capital through the sale of equity
or convertible debt securities, the issuance of those securities would result in
dilution to our stockholders. Moreover, incurring debt financing could result in
a substantial portion of our operating cash flow being dedicated to the payment
of principal and interest on such indebtedness, could render us more vulnerable
to competitive pressures and economic downturns and could impose restrictions on
our operations. If adequate funds are not available, we may be required to
curtail operations significantly or to obtain funds through other arrangements
on unattractive terms.
BECAUSE IT IS UNLIKELY THAT WE WILL PAY DIVIDENDS, YOU WILL ONLY BE ABLE TO
BENEFIT FROM HOLDING OUR STOCK IF THE STOCK PRICE APPRECIATES.
We have never paid cash dividends on our capital stock and do not
anticipate paying any cash dividends in the foreseeable future.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS COULD MAKE A THIRD-PARTY
ACQUISITION OF US DIFFICULT.
Our certificate of incorporation and bylaws contain provisions that could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
See "Description of Securities -- Anti-takeover effects of provisions of the
certificate of incorporation and bylaws."
13
<PAGE> 18
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks" and "estimates," and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed, implied or forecasted in the forward-looking statements. In
addition, the forward-looking events discussed in this prospectus might not
occur. These risks and uncertainties include, among others, those described in
"Risk Factors" beginning on page 5 and elsewhere in this prospectus. You are
cautioned not to place undue reliance on these forward-looking statements, which
reflect our management's view only as of the date of this prospectus. Except as
required by law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock we are offering will be approximately $ million at an assumed
initial public offering price of $ per share after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that the
net proceeds will be approximately $ million.
We currently intend to use the net proceeds to fund our operations,
including continued development and manufacturing of existing products as well
as research and development of additional products and services. We also may use
a portion of the net proceeds to acquire new businesses or technologies, hire
additional personnel and expand our facilities to be able to meet the growing
needs of our business. Although we have no current plans, agreements or
commitments with respect to any acquisition, we may, if the opportunity arises,
use an unspecified portion of the net proceeds to acquire or invest in products,
technologies or companies. We intend to use the balance of the net proceeds for
general corporate purposes, including working capital. Our management may spend
the proceeds from this offering in ways which the stockholders may not deem
desirable.
The timing and amount of our actual expenditures will be based on many
factors, including cash flows from operations and the growth of our business.
Until we use the net proceeds of this offering for the above purposes, we
intend to invest the funds in short-term, investment-grade, interest-bearing
securities. We cannot predict whether the proceeds invested will yield a
favorable return.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any earnings to support operations and to finance the
growth and development of our business. Therefore, we do not expect to pay cash
dividends in the foreseeable future. Any future determination relating to our
dividend policy will be made at the discretion of our board of directors and
will depend on a number of factors, including future earnings, capital
requirements, financial conditions and future prospect and other factors that
the board of directors may deem relevant.
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<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis derived from the unaudited financial statements;
- on a pro forma basis to give effect to the issuance of 1,392,503 shares
of Series E redeemable preferred stock in April 2000, the automatic
conversion of 7,954,781 shares of our redeemable preferred stock
outstanding as of the date this prospectus into an aggregate of 8,016,412
shares of common stock upon the closing of this offering, the issuance of
common stock, warrant and stock options as consideration for the
acquisition of AAT in April, 2000; and
- on a pro forma as adjusted basis to give effect to the receipt of the
estimated net proceeds from the sale of shares of common
stock offered by this prospectus at an assumed initial public offering
price of $ per share.
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Long-term obligations, less current portion...... $ 2,504,493 $ 2,504,493 $ 2,504,493
Redeemable convertible preferred stock:
Authorized shares -- 7,333,333 actual,
9,033,333 pro forma and none pro forma as
adjusted; Issued and outstanding shares --
6,562,278 actual, none pro forma and none
pro forma as adjusted....................... 27,906,717 -- --
Stockholders' equity
Preferred stock:
Authorized shares -- none actual, none pro
forma and 1,000,000 pro forma as adjusted;
Issued and outstanding shares -- none
actual, pro forma and pro forma as
adjusted.................................... -- -- --
Common stock:
Authorized shares -- 10,000,000 actual,
20,000,000 pro forma, and 100,000,000 pro
forma as adjusted; Issued and outstanding
shares -- 1,789,068 actual, 17,235,121 pro
forma and pro forma as adjusted............. 1,789 17,235
Additional paid-in capital....................... 4,016,372 101,492,667
Deferred stock compensation...................... (1,824,265) (1,824,265) (1,824,265)
Note receivable from shareholder................. (240,000) (240,000) (240,000)
Accumulated other comprehensive loss............. (152,069) (152,069) (152,069)
Accumulated deficit.............................. (21,362,810) (21,362,810) (21,362,810)
------------ ------------ ------------
Total stockholders' equity (deficit)........ (19,560,983) 77,930,758
------------ ------------ ------------
Total capitalization........................ $ 10,850,227 $ 80,435,251 $
============ ============ ============
</TABLE>
The table above does not include:
- 1,867,847 shares of common stock issuable upon exercise of options
outstanding at a weighted average price of $2.50 per share at May 5,
2000.
- 1,432,153 additional shares of common stock available for future grant
under our 2000 Stock Incentive Plan to become effective at the close of
this offering. To the extent that these options are exercised, there will
be further dilution to new investors.
15
<PAGE> 20
- Warrants exercisable into 905,294 shares of common stock with a weighted
average exercise price of $3.60 per share, of which warrants to purchase
670,209 shares will expire if they are not exercised at the time of this
offering.
- Of the total shares outstanding, 366,151 are subject to our right of
repurchase as of May 5, 2000.
The above information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes thereto included elsewhere
in this prospectus.
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<PAGE> 21
DILUTION
Our historical net tangible book value as of March 31, 2000 was
approximately $(26,691,000), or $(14.92) per share, based on the number of
common shares outstanding as of March 31, 2000. Historical net tangible book
value per share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common shares outstanding as of
March 31, 2000.
Our pro forma net tangible book value as of March 31, 2000 was
approximately $24,662,000, or $1.43 per share, based on the pro forma number of
common shares outstanding as of March 31, 2000, calculated after giving effect
to the automatic conversion of 6,562,278 shares of our preferred stock
outstanding as of March 31, 2000 into 6,623,909 shares of our common stock,
conversion of 1,392,503 shares of redeemable Series E preferred stock issued in
April 2000 into 1,392,503 shares of common stock and the issuance of 7,429,641
shares of common stock, a $550,000 promissory note and $50,000 in cash as
consideration for the acquisition of AAT.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards, after giving effect to the sale of
shares in this offering. This represents an immediate increase in
pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution in pro forma net tangible book value of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share............... $
Increase attributable to the offering.....................
------
Net tangible book value per share after the offering........
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
March 31, 2000, after also giving effect to this offering, the total number of
shares of common stock purchased from us and the total consideration and the
average price per share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ % $
New investors.........................
------- ----- -------- -----
Total............................... % $ % $
======= ===== ======== =====
</TABLE>
The tables and calculations above assume no exercise of the outstanding or
available options or warrants described below:
- 1,867,847 shares of common stock issuable upon the exercise of options
outstanding at a weighted average exercise price of $2.50 per share at
May 5, 2000;
- 905,294 shares of common stock issuable upon the exercise of warrants
outstanding at a weighted average exercise price of $3.60 per share at
May 5, 2000; and
- 1,432,153 additional shares available for future grant at May 5, 2000
under our 2000 Stock Incentive Plan to become effective upon the
completion of this offering.
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<PAGE> 22
To the extent that these options or warrants are exercised, there will be
further dilution to new investors. See "Management -- Employee Benefit Plans"
for further information regarding our stock option plan and stock purchase plan.
If the underwriters exercise their over-allotment option in full, the
following will occur:
- the percentage of shares of our common stock held by existing
stockholders will decrease to approximately % of the total number of
shares of our common stock outstanding after this offering;
- the number of shares of our common stock held by new public investors
will increase to , or approximately % of the total
number of shares of our common stock outstanding after this offering; and
- our pro forma as adjusted net tangible book value will increase to $
per share to existing stockholders and our pro forma as adjusted net
tangible book value will be diluted by $
per share to new investors.
18
<PAGE> 23
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with the Discovery Partners International, Inc. ("DPI") and AAT
financial statements and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. The pro forma statement of operations data for the
year ended December 31, 1999 and the three months ended March 31, 2000 should be
read in conjunction with the unaudited pro forma financial statements included
elsewhere in this prospectus. That data assumes that we purchased AAT as of the
beginning of each of these periods and is based on our historical operating
results and those of AAT for the periods presented, giving effect to the
amortization of intangibles related to the acquisition, decreased interest
income representing foregone interest income, issuance of shares of common stock
to complete the acquisition as if such issuance had occurred at the beginning of
each of the periods presented, and the conversion of all of our outstanding
shares of preferred stock as of their original dates of issuance. Our statement
of operations data for the years ended December 31, 1995, 1996, 1997, 1998 and
1999 and balance sheet data as of December 31, 1995, 1996, 1997, 1998 and 1999
are derived from our audited financial statements, of which the statement of
operations data for the years ended December 31, 1997, 1998 and 1999 and balance
sheet data as of December 31, 1998 and 1999 are included elsewhere in this
prospectus. Our statement of operations data for the three months ended March
31, 1999 and 2000 and balance sheet data at March 31, 2000 are derived from our
unaudited financial statements included elsewhere in this prospectus. The
unaudited financial statements have been prepared on substantially the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of the financial position and results of operations for the
periods presented. Historical results are not necessarily indicative of the
results that may be expected in the future, and the results of interim periods
are not necessarily indicative of results that may be expected for the entire
year.
19
<PAGE> 24
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 22,
1995 THREE MONTHS
(INCEPTION) TO YEARS ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ------------------------------------------------ ----------------------------
1995 1996 1997 1998 1999 1999 1999 2000 2000
-------------- ------- ------- ------- ------- ------- ------ ------- -------
PRO PRO
ACTUAL FORMA ACTUAL FORMA
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenue:...................... $ -- $ 413 $ 3,150 $ 6,214 $13,076 $27,050 $2,896 $ 5,173 $10,513
Cost of revenue............... -- 159 1,312 2,786 8,235 11,957 1,763 3,053 4,245
------- ------- ------- ------- ------- ------- ------ ------- -------
Gross margin.................. -- 254 1,838 3,428 4,841 15,093 1,133 2,120 6,268
Operating expenses:
Research and development..... 636 2,598 4,143 5,058 3,538 8,959 969 619 2,183
Selling, general and
administrative............. 590 1,637 2,528 4,984 4,439 6,418 1,093 1,519 2,169
Amortization of deferred
compensation............... -- -- -- -- 311 311 70 264 264
Amortization of goodwill..... -- -- -- -- -- 3,279 -- 155 975
------- ------- ------- ------- ------- ------- ------ ------- -------
Total operating expenses... 1,226 4,235 6,671 10,042 8,288 18,967 2,132 2,557 5,591
------- ------- ------- ------- ------- ------- ------ ------- -------
Income (loss) from
operations................... (1,226) (3,981) (4,833) (6,614) (3,447) (3,874) (999) (437) 677
Interest income (expense)..... (10) (45) 14 273 211 155 76 (1,322) (1,336)
Foreign currency translation
income (expense)............. -- -- (3) 63 (134) (134) (50) 129 129
Provision for income taxes.... -- -- -- -- -- -- -- -- (453)
------- ------- ------- ------- ------- ------- ------ ------- -------
Net (loss).................... $(1,236) $(4,026) $(4,822) $(6,278) $(3,370) $(3,853) $ (973) $(1,630) $ (983)
======= ======= ======= ======= ======= ======= ====== ======= =======
Net loss per share, basic and
diluted...................... $ (7.36) $(12.95) $ (8.85) $ (8.20) $ (3.00) $ (.45) $(0.96) $ (1.23) $ (.11)
======= ======= ======= ======= ======= ======= ====== ======= =======
Shares used in calculating net
loss per share, basic and
diluted...................... 168 311 545 765 1,125 8,555(2) 1,014 1,324 8,754(2)
Pro forma net loss per share,
basic and diluted............ $ (.44) $ (.25) $ (.21) $ (.06)
======= ======= ======= =======
Shares used in calculating pro
forma net loss per share,
basic and diluted............ 7,729(1) 15,158(2) 7,939(1) 15,368(2)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
------- ------ -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents................................... $ 34 $4,226 $ 281 $10,715 $ 2,885 $ 984
Working capital (deficit)................................... (460) 4,289 949 8,976 (3,663) (3,950)
Total assets................................................ 820 5,671 3,831 16,596 21,652 21,750
Long term obligations, less current portion................. 76 486 322 96 1,910 2,505
Redeemable preferred stock.................................. 1,474 9,953 11,890 27,907 27,907 27,907
Total stockholders' equity (deficit)........................ (1,237) (5,229) (10,035) (16,298) (19,269) (19,561)
</TABLE>
- -------------------------
(1) The pro forma net loss per share and shares used in computing pro forma net
loss per share are calculated as if all of our convertible preferred stock
was converted into shares of our common stock on the date of their issuance.
(2) Net loss per share, basic and diluted is based on DPI's weighted average
common shares outstanding, after giving effect to the issuance of shares of
DPI's common stock used to complete the acquisition as if such issuance had
occurred at the beginning of the periods. Pro forma net loss per share,
basic and diluted also includes the assumed conversion of all of DPI's
outstanding shares of redeemable preferred stock as of their original dates
of issuance.
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes to those statements included elsewhere in this prospectus. This discussion
may contain forward-looking statements that involve risks and uncertainties. As
a result of many factors, such as those set forth under "Risk Factors" and
elsewhere in this prospectus, our actual results may differ materially from
those anticipated in these forward-looking statements.
OVERVIEW
We sell a broad range of products and services to pharmaceutical and
biotechnology companies to make the drug discovery process for our customers
faster, less expensive and more effective at generating drug candidates. We
focus on the portion of the drug discovery process after identification of a
drug target through when a drug candidate is ready for clinical trials. We
develop and sell libraries of drug-like compounds, proprietary instruments,
consumables and computational tools to generate compound libraries, and test,
screen and optimize potential drugs. We recently acquired three businesses, AAT,
Discovery Technologies and Structural Proteomics.
We recognize revenue of product sales as products are shipped. Development
and service contract revenues are recognized on a percentage of completion
basis. Advances received under these contracts are recorded as deferred revenue
and recognized as costs are incurred over the terms of the contracts.
We currently sell our products and services directly to pharmaceutical and
biotechnology companies through our sales, marketing, and service personnel
located in the United States and Europe. In addition, we sell and service our
products in Japan through a distributor.
You should note that the comparisons which follow compare actual results
for the applicable periods and do not reflect any pro forma adjustments.
Amortization of deferred compensation. We have recorded deferred stock
compensation in connection with the grant of stock options to employees.
Deferred stock compensation is the difference between the deemed fair value of
our common stock for financial reporting purposes on the date such options were
granted and their exercise price. The deferred stock-based compensation is being
amortized to expense on an accelerated basis over the four year vesting period
of the individual options. As of March 31, 2000, there was approximately $1.8
million of deferred stock compensation to be amortized in future periods.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenue. Revenue increased to approximately $5.2 million for the first
three months of 2000 from approximately $2.9 million for the first three months
of 1999. Revenue increased primarily due to the inclusion of assay screening
revenue from our Discovery Technologies group, which was acquired at the end of
1999, and an increase in compound library sales.
Cost of revenues. Cost of revenues increased to approximately $3.1 million
for the first three months of 2000 from approximately $1.8 million for the first
three months of 1999. Our cost of revenues increased by 73%, while our total
revenue increased by 79% between the same periods. As a result, gross margin
increased from approximately 39% to approximately 41%, primarily due to reduced
material costs of our Directed Sorting products and the impact of higher margins
from our
21
<PAGE> 26
assay screening revenue related to the December 1999 acquisition of our
Discovery Technologies group.
Research and development expenses. Research and development expenses
consist primarily of salaries and benefits, supplies and expensed development
materials, and facilities costs and equipment depreciation. Research and
development expenses decreased to approximately $619,000 for the first three
months of 2000 from approximately $969,000 for the first three months of 1999,
primarily due to a shift of development personnel to customer-funded product
development programs from our internally-funded product development efforts. We
anticipate our research and development expenses will increase over the next few
years as we increase our new product development efforts.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries and benefits for sales and
marketing and administrative personnel, advertising and promotional expenses,
professional services, and facilities costs. Selling, general and administrative
expenses increased approximately 39% to $1.5 million for the first three months
of 2000 from approximately $1.1 million for the first three months of 1999. The
increase was due primarily to increased personnel and related costs necessary to
support our growth in operations. We anticipate selling, general and
administrative expenses will increase during the foreseeable future to support
our business growth efforts.
Stock-based compensation. During the three months ended March 31, 2000, we
granted stock options with exercise prices that were less than the deemed fair
value of the underlying shares of common stock on the date of grant. As a
result, we have recorded and will continue to record deferred stock-based
compensation over the period that these options vest. The deferred stock-based
compensation expense for the first three months of 2000 was approximately
$263,000, compared to approximately $70,000 for the first three months of 1999.
Amortization of goodwill. We recognized approximately $155,000 in goodwill
amortization expense for the first three months of 2000 in connection with the
acquisition of Discovery Technologies. Since the acquisition was completed at
the end of 1999, there was no corresponding goodwill amortization expense for
the first three months of 1999. We expect goodwill amortization expense to
increase going forward as a result of our acquisition of AAT in April 2000 and
our acquisition of Structural Proteomics, Inc. during May 2000. All three
acquisitions are being accounted for as purchases.
Interest income. We incurred net interest expense of approximately $1.3
million for the first three months of 2000, due primarily to the existence of
$6.0 million of short-term promissory notes and the imputed value of warrants
that were issued in connection with the notes. The total $6.0 million in
principal plus accrued interest was converted into equity in April 2000, as part
of our Series E Preferred Stock financing round. We earned approximately $76,000
in net interest income for the first three months of 1999. We anticipate net
interest income will increase significantly following the completion of this
stock offering.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenue. Total revenue increased to approximately $13.1 million in 1999
from approximately $6.2 million in 1998 and $3.1 million in 1997. The revenue
increase from 1997 to 1998 was primarily a result of increased sales of our
Directed Sorting product line. The revenue increase from 1998 to 1999 was
primarily due to increased sales of our Directed Sorting product line and the
commencement of the proprietary NanoKan product development contracts with
Bristol-Myers Squibb and Aventis.
Cost of revenues. Cost of revenues increased to approximately $8.2 million
in 1999 from approximately $2.8 million in 1998 and $1.3 million in 1997. Cost
of revenues was approximately 63%
22
<PAGE> 27
of revenues in 1999, compared to approximately 45% in 1998 and 42% in 1997. The
higher cost of revenues as a percentage of revenue in 1999 was due primarily to
the impact of the NanoKan development program which has a nominal gross margin.
Research and development expenses. Research and development expenses
decreased to approximately $3.5 million in 1999 from approximately $5.1 million
in 1998 and $4.1 million in 1997. Beginning in mid-1998, certain research and
development personnel and related costs were transferred from our
internally-funded development of the Directed Sorting product line to the
NanoKan development program, which is being funded by our customers,
Bristol-Myers Squibb and Aventis. These expenses were accordingly reported as
cost of revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses totaled approximately $4.4 million in 1999, compared to
approximately $5.0 million in 1998 and $2.5 million in 1997. The decrease in
total selling, general and administrative expenses in 1999 was primarily due to
severance payments, recruitment, and relocation expenses incurred in 1998, which
were not repeated in 1999. The increase in selling, general and administrative
expenses from 1997 to 1998 was due primarily to the increased sales and
marketing staffing levels and the expanded management team and infrastructure
consistent with the revenue growth we experienced. As noted, these initiatives
in 1998 included non-recurring expenses for severance payments, recruitment and
relocation.
Amortization of deferred compensation. During the year ended December 31,
1999, we granted stock options with exercise prices that were less than the
deemed fair value of the underlying shares of common stock on the date of grant.
As a result, we have recorded and will continue to record deferred stock-based
compensation over the period that these options vest. The deferred stock-based
compensation expense for 1999 was approximately $311,000.
Interest income. We had net interest income of approximately $211,000 in
1999, compared to approximately $273,000 in 1998 and $14,000 in 1997. The
increase in interest income from 1997 to 1998 was primarily due to higher cash
levels resulting from approximately $16.0 million in cash proceeds from the sale
of Series D Preferred Stock in June 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations principally with $39.0 million of private
equity financings and $3.5 million in short-term and long-term debt and
equipment financing arrangements. Equity investments came from a series of five
preferred stock offerings over the period October 1995 through April 2000.
At March 31, 2000, cash and cash equivalents totaled $984,000 compared to
$2.9 million, $10.7 million and $281,000 at December 31, 1999, 1998 and 1997,
respectively.
Net cash used in operating activities for the three months ended March 31,
2000 was approximately $3.0 million compared with $3.2 million for the same
period in 1999. A net loss of $1.6 million for the first three months of 2000
was offset by non-cash charges of $1.2 million for non-cash interest expense for
warrants issued, $263,000 for amortization of deferred compensation and $608,000
for depreciation and amortization expenses. Accounts payable was reduced during
the three months ended March 31, 2000 by $2.0 million, primarily due to the
payment of $1.7 million in contingent purchase price consideration to the former
shareholders of Discovery Technologies Ltd. Approximately $1.2 million of cash
and cash equivalents was used in investing activities during the period for
leasehold improvements and the acquisition of capital equipment. Approximately
$2.4 million of cash and cash equivalents was provided by financing activities
during the period, primarily from a $2.0 million promissory note (which was
converted into equity in April 2000).
23
<PAGE> 28
Net cash used in operating activities was approximately $5.7 million, for
the year ended December 31, 1999. Our net loss of $3.4 million, offset by
non-cash charges of $670,000, accounted for most of this use, and cash and cash
equivalents of $1.0 million were placed in a restricted account in 1999 as
collateral against a standby letter of credit. Deferred revenues were reduced by
$775,000 in 1999, primarily as a result of the recognition of revenue on the
NanoKan development contracts. Increases in accounts receivable and inventory,
along with a decrease in accounts payable, used an additional $1.3 million in
cash and cash equivalents in 1999.
Approximately $5.0 million in cash was used in 1999 for the acquisition of
Discovery Technologies.
In 1999, $4.0 million in promissory notes, less the repayment of $205,000
in equipment financing, provided approximately $3.8 million in net cash from
financing activities. An additional $2.0 million in cash was received in March
2000 from the issuance of another promissory note.
In December 1999, our Discovery Technologies group entered into a line of
credit with Basel Kantonal Bank for working capital advances, or borrowings up
to approximately $1.3 million. Borrowings accrue interest at 4.75% per annum
plus 0.25% per quarter. As of March 31, 2000, we had an outstanding loan balance
of $763,000. Our Discovery Technologies group also entered into a loan agreement
for $1.6 million from Novartis Venture Fund. The loan accrues interest at the
rate of 5% per annum and is payable in full by June 2001.
In April 2000, we issued 1,392,503 shares of Series E redeemable
convertible preferred stock at $8.00 per share in exchange for the conversion of
the $6.0 million in outstanding promissory notes and $5.0 million in additional
cash.
In April 2000, we acquired AAT, a wholly-owned subsidiary of Axys
Pharmaceuticals, Inc. in exchange for 7,429,641 shares of our common stock, a
promissory note in the principal amount of $550,344 and $50,031 in cash.
In May 2000 we acquired 75% of the outstanding shares of Structural
Proteomics for total consideration of $1.0 million in cash and 150,000 shares of
our common stock. The 150,000 shares of our common stock was paid directly to
certain shareholders of Structural Proteomics, while the $1.0 million was
invested in Structural Proteomics as consideration for newly issued shares.
Our future capital requirements will depend on a number of factors,
including our success in increasing sales of both existing and new products and
services, expenses associated with unforeseen litigation, regulatory changes and
competition and technological developments, and potential future merger and
acquisition activity. We believe our existing cash and cash equivalents,
together with the net proceeds of this offering, will be sufficient to fund our
operating expenses, debt obligations and capital requirements through at least
December 31, 2001.
At December 31, 1999, we had federal and California income tax net
operating loss carryforwards of approximately $14.6 million and $10.9 million,
respectively. The difference between the federal and California tax operating
loss carryforwards is primarily attributable to the capitalization of research
and development expenses for California income tax purposes. The federal and
California tax net operating loss carryforwards will begin to expire in 2010 and
2003, respectively, unless previously used. We also have federal and California
research tax credit carryforwards of approximately $680,000 and $393,000,
respectively, which will begin to expire in 2010 unless previously used. We have
provided a 100% valuation allowance against the related deferred tax assets as
realization of such tax benefits is not assured.
24
<PAGE> 29
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Short-term investments. Our interest income is sensitive to changes in the
general level of U.S. interest rates, particularly since a significant portion
our investments are and will be in short-term marketable securities. Due to the
nature and maturity of our short-term investments, we have concluded that there
is no material market risk exposure.
Foreign currency rate fluctuations. The functional currency for the
European operations of our IRORI group is the U.S. dollar, and the functional
currency for our Discovery Technologies group is the Swiss franc. Our subsidiary
accounts are translated from their local currency to the U.S. dollar using the
current exchange rate in effect at the balance sheet date, for balance sheet
accounts, and using the average exchange rate during the period for revenues and
expense accounts. The effects of translation for the European operations of our
IRORI group are recorded as foreign currency translation income (expense) in the
statement of operations. The effects of translation for our Discovery
Technologies group are recorded as a separate component of stockholders' equity.
Our European subsidiaries conduct their business with customers in local
currencies. Exchange gains and losses arising from these transactions are
recorded using the actual exchange differences on the date of the transaction.
We have not taken any action to reduce our exposure to changes in foreign
currency exchange rates, such as options or futures contracts, with respect to
transactions with our European subsidiaries or transactions with our worldwide
customers. The net tangible assets of our two European subsidiaries combined
were $6.1 million at March 31, 2000. A 1% decrease in the value of the British
pound and Swiss franc relative to the U.S. dollar would result in a foreign
translation loss of $61,000.
Inflation. We do not believe that inflation has had a material impact on
our business or operating results during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. We
believe the adoption of SFAS No. 133 will not have an effect on the financial
statements because we do not engage in derivative or hedging activities.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. The application of SAB No. 101 is not expected to have a
material impact on our financial statements.
25
<PAGE> 30
BUSINESS
OVERVIEW
We sell a broad range of products and services to pharmaceutical and
biotechnology companies to make the drug discovery process for our customers
faster, less expensive and more effective at generating drug candidates. We
focus on the portion of the drug discovery process after identification of a
drug target through when a drug candidate is ready for clinical trials. We
develop and sell libraries of drug-like compounds, proprietary instruments,
consumables and computational tools to generate compound libraries, and test,
screen and optimize potential drugs. We intend to continue to aggressively grow
our company through internal development and acquisition of other companies to
expand our range of offerings and implement leading-edge technologies. We
recently acquired three businesses: AAT, Discovery Technologies and Structural
Proteomics. We generated more than $10.5 million in revenues on a combined pro
forma basis during the first quarter of 2000. Since inception in 1995, we have
sold products to and conducted projects for over 100 customers, including
Aventis, Bayer, Bristol-Myers Squibb, SmithKline Beecham and Warner-Lambert.
INDUSTRY BACKGROUND
THE GENOMICS REVOLUTION
The drug discovery process is undergoing fundamental changes as a result of
advances in genomics and proteomics. Genomics and proteomics, the studies of
genes and the proteins they encode, have been the subject of intense scientific
and commercial focus. Genomics has led to the identification of large numbers of
genes encoding potential drug targets, increasing the demand for drug discovery
products and services. Drug targets are biological molecules, such as enzymes,
receptors, other proteins and nucleic acids, that are believed to play a role in
the onset or progression of a disease. Once a potential drug target is
identified, companies must still devote significant time and resources to
validating the target and screening libraries of compounds against the target to
discover potential drug candidates, which must be optimized further before human
testing. Historically, only approximately 500 identified drug targets have been
used in the development of drugs. Through the application of genomics and
proteomics, industry experts predict that thousands of new drug targets will be
identified.
26
<PAGE> 31
THE DRUG DISCOVERY PROCESS
Despite numerous advances and breakthrough technologies in genomics and
proteomics, the process of discovering drug candidates from drug targets, as
illustrated in the following figure and described below, remains slow, expensive
and often unsuccessful.
[DRUG DISCOVERY FLOW DIAGRAM]
DRUG TARGETS. The genomics revolution has identified large numbers of human
genes that encode the chemical information for cells to produce the proteins
that determine human physiology and disease. Drug discovery organizations are
rushing to advance these new drug targets into discovery with varying degrees of
target validation, or understanding of their role in disease processes, or
understanding of their susceptibility to modulation by chemical compounds.
ASSAYS. Once a drug target has been identified and validated as having a
role in a disease process, a corresponding set of biological assays, or tests,
that relate to the activity of the drug target in the disease process must be
developed. These assays are designed to show the effect of chemical compounds on
the drug target and/or the disease process. Additionally, assays indicate the
relative potency and specificity of interaction between the target and the
compounds.
COMPOUND LIBRARIES. Typically, libraries of thousands of compounds each are
screened in assays to find those compounds that are active in altering the
behavior of the drug targets. Traditionally, medicinal chemists generated these
compounds for testing by synthesizing them one at a time, or painstakingly
isolating them from natural sources. During the last several years, modular,
building block techniques, known as combinatorial chemistry, for the generation
of compounds have been developed to increase productivity.
SCREENING. Screening is the process of testing compounds in assays to
determine their potential therapeutic value. A typical screening campaign at a
pharmaceutical company will entail screening hundreds of thousands of compounds
from multiple compound libraries. Today's automated high throughput screening
(HTS) systems can test tens of thousands of compounds per day and require only a
very small amount of the compound and target material.
HITS-TO-OPTIMIZED-LEADS. A successful screening process will identify a
number of compounds, or hits, that show activity against the drug target. One or
more of the hits are then selected for optimization based on their potency and
specificity against the drug target. The hits selected for the optimization
process are generally referred to as "leads."
27
<PAGE> 32
Optimizing a lead involves iteratively generating slight variants of the
lead and screening them in assays to discover the relationship between the
changes in the molecular structure of compounds and the positive or negative
effect on biological activity in the assay. These trends are called
"structure-activity relationships" (SARs) and are used to produce the compounds
that have the optimal effect on the biological activity in the assay.
Traditionally, generating structure-activity relationships (SARs) was
painstakingly slow. Within the last several years, some pharmaceutical companies
have harnessed the modular building block approach of combinatorial chemistry to
speed this process. Their medicinal chemists create combinatorially generated
"focused libraries" that are made up of dozens to hundreds of compounds,
computationally designed to explore the structure-activity relationships (SARs)
of leads.
ADME AND TOXICOLOGY. Once a very potent and selective compound with a well
understood structure-activity relationship (SAR) is selected for further
development, the process of establishing its absorption, distribution,
metabolism and excretion, or ADME, and toxicology characteristics is undertaken.
Leads are studied in biochemical assays and animal studies to determine, among
other things, whether they are likely to be safe in humans and whether they are
likely to stay in the body long enough to perform their intended function.
Traditionally, these ADME and toxicology studies are performed at the end of the
drug discovery process. There is a significant push in the industry, however, to
attempt to provide ADME and toxicology information earlier in the process in
order to avoid large expenditures on compounds that will ultimately fail due to
their ADME and toxicology characteristics.
DRUG CANDIDATES. If the results of the ADME and toxicology studies
performed on a lead are favorable, an investigational new drug application, or
IND, may be filed with the Food and Drug Administration requesting permission to
begin clinical trials of the drug candidate in humans.
LIMITATIONS OF THE CURRENT INDUSTRY
To meet growth expectations, pharmaceutical companies are under intense
pressure to introduce new drugs, and they have increased research and
development expenses more than five-fold since 1985. Nevertheless, the number of
new drugs approved by the Food and Drug Administration per year has increased
only modestly over that period, increasing from 22 in 1985 to 35 in 1999 and
ranging from 20 to 53 new drugs in any one year during that period. Despite
major scientific and technological advances in areas such as genomics, high
throughput screening (HTS) and combinatorial chemistry, the drug discovery
process remains lengthy, expensive and often unsuccessful.
We believe that the following remain significant limitations to the current
process of drug discovery.
INSUFFICIENT VALIDATION OF TARGETS. Drug discovery organizations are
advancing potential new drug targets into discovery with varying degrees of
understanding of their role in disease processes and frequently with little
understanding of their susceptibility to modulation by compounds. The resources
spent on pursuing these potential drug targets could be saved if there were
better biological or chemical methods to de-select drug targets for these
characteristics.
INEFFICIENT PRODUCTION OF COMPOUND LIBRARIES. The dramatic increase in the
number of potential drug targets has increased the demand for high quality
compounds for screening. Traditional methods and instrumentation produce either
discrete compounds in small numbers, or produce large numbers of compounds that
are not discrete, but are present as mixtures whose components must be
identified later using time-consuming tagging and screening techniques. Further,
the processes used to develop compound libraries have been labor intensive and
have lacked the efficiencies created by automated instrumentation.
28
<PAGE> 33
LOW QUALITY COMPOUND LIBRARIES. While combinatorial chemistry has vastly
increased the number of compounds available for screening, many of the compounds
generated have lacked the qualities necessary to become new drug candidates.
Inadequately validated chemistries generate hit compounds that are difficult or
impossible to reproduce. In addition, libraries are often designed using
inadequate diversity measurements resulting in large numbers of redundant
compounds. Further, little attention is devoted to the drug-like nature of the
compounds leading to hits that are toxic or have other fundamental flaws.
Finally, many libraries contain impure compounds that lead to false positives or
the inability to reproduce results.
INSUFFICIENT RESOURCES FOR ASSAY DEVELOPMENT, SCREENING AND LEAD
OPTIMIZATION. Many pharmaceutical companies have attempted to reduce costs and
focus internal efforts on critical and proprietary areas by outsourcing portions
of their research and development functions. Many biotechnology and small
pharmaceutical companies have biological and genomic expertise but lack the
internal capabilities to advance through the drug discovery process.
Simultaneously with the increase in outsourcing, the number of drug targets
available to drug discovery overall is dramatically increasing.
INADEQUATE INFORMATICS AND COMPUTATIONAL TOOLS. Success of many drug
discovery programs is predicated on screening large numbers of compounds,
followed by the synthesis and testing of compounds for optimization and for
their ADME and toxicology characteristics. This sequential approach is
time-consuming and costly. Many of the recent advances in drug discovery have
been targeted at streamlining this process and have allowed large numbers of
compounds to be generated and tested in higher throughput. However, these
advances have been incremental. Large expenditures of time and money can be
saved by increased and earlier input of knowledge about which targets are likely
to be amenable to chemical modulation, the likely interaction of chemicals and
biological targets and which compounds are likely to have unacceptable ADME and
toxicological characteristics prior to testing.
LACK OF AN INTEGRATED, NEUTRAL DRUG DISCOVERY SOLUTION. Many of the
companies that provide drug discovery services to the pharmaceutical and
biotechnology industries provide limited services. Thus they are unable to
provide the knowledge and efficiencies that can be gained by broad experience in
multiple facets of drug discovery. Further, customers must use valuable
resources to manage multiple vendors and integrate inconsistent or incompatible
products. Drug discovery service providers may also demand royalties in return
for their services or compete with their customers by conducting internal,
proprietary drug discovery activities.
OUR SOLUTION
We bring together a unique combination of drug discovery expertise,
technology and services to meet the needs of the pharmaceutical and
biotechnology industries. Our customers include most major pharmaceutical
companies and numerous biotechnology companies. We believe the broad range of
products and services we offer or intend to offer will provide the following
benefits:
TARGET VALIDATION. In combination with the Genomics Institute of the
Novartis Research Foundation, we are developing chemistry-based methods of
validating drug targets that we believe will enable us to identify targets that
are important in a disease process and can be modulated by chemical means. We
have developed large libraries of highly diverse compounds that are specifically
designed to modulate many drug targets. We believe that we will be able to use
these libraries to provide early information about whether a drug target is
susceptible to chemical modulation and, if so, whether modulation of its
activity has an important effect on the disease process or outcome. If these
libraries are successful in providing this information early in the drug
discovery process, our customers can save large amounts of money and time.
29
<PAGE> 34
EFFICIENT PRODUCTION OF COMPOUND LIBRARIES THROUGH OUR DIRECTED SORTING
PRODUCTS. Our proprietary combinatorial system, referred to as Directed Sorting,
combines the advantages of parallel synthesis, i.e., discrete compounds with
large amounts of each compound, and split-and-pool synthesis, i.e., very high
productivity, in generating compound libraries. With the use of our proprietary
reactors, compounds are synthesized with high efficiency and speed but are kept
discrete in individually tagged reactors, avoiding the problems of compound
mixtures. Our Directed Sorting products have been widely adopted throughout the
pharmaceutical industry. We believe that in 1999 more than one million compounds
were synthesized by our customers using these products.
HIGH QUALITY COMPOUND LIBRARIES. We invest significant resources developing
our compound libraries to save our customers significant time and resources
later in the drug discovery process. Our chemistries are repeatable and our
compounds rapidly replenishable because we produce detailed synthesis protocols,
or recipe books, for each library. We are able to rapidly create focused
libraries containing slight variations of hits from our original discovery or
targeted libraries to study structure-activity relationships (SARs). Our
discovery libraries are designed for maximum diversity using proprietary
computer algorithms that score three-dimensional diversity elements. Over 100
medicinal chemists, both internal and external, review each of our libraries for
drug-like properties. Finally, after synthesis, we use multiple analytical
methods to ensure a high degree of compound purity. As a consequence, our
libraries contain highly diverse, drug-like compounds of high purity.
BROAD RANGE OF PRODUCTS AND SERVICES FOR ASSAY DEVELOPMENT, CHEMISTRY AND
SCREENING. We currently offer a broad range of drug discovery products and
services targeted at areas of significantly expanded demand from pharmaceutical
and biotechnology companies -- assay development, chemistry and screening. We
have performed over 60 different assays for our customers. We also provide
access to more than one million discrete compounds, of which over 600,000 come
from many of the world's leading compound suppliers and over 450,000 are
internally generated. We are expanding our libraries at a rate of approximately
250,000 compounds per year. Our high throughput screening system, HTS-Factory,
is capable of screening more than 100,000 compounds per day for most biochemical
assays. In addition, our team of more than 65 chemists and biologists has worked
on numerous hit and lead optimization projects for our customers.
DEVELOPMENT OF AN INFORMATICS AND COMPUTATIONAL TOOLS KNOWLEDGE BASE. We
are developing state-of-the-art computational software tools to generate
predictive information in the early stages of drug discovery. We design our
tools to correlate information on families of drug targets and compounds with
screening data to predict which drug targets are likely to be amenable to
chemical modulation and be the right point of chemical intervention in a
disease, and which chemical structures are likely to react favorably with large
families of drug targets or produce unacceptable ADME or toxicological results.
Initially, we have developed computer algorithms that allow us to design
libraries of compounds with maximum diversity, thereby reducing the number of
compounds that must be screened. We believe that our computational tools will
have the potential to fundamentally alter the drug discovery process, reducing
the time and cost involved.
INTEGRATED DRUG DISCOVERY PRODUCTS AND SERVICES ON ATTRACTIVE TERMS. We
offer a broad range of integrated drug discovery products and services on terms
and conditions that we believe make our products and services easy to purchase.
We believe that our integrated approach provides unique value to our customers.
For example, we believe that it is highly important to our screening customers
that we provide both assay development services and access to compounds for
screening. We do not request royalties from our customers and do not compete
with them. We believe that our fee-for-service terms and focus on our customers'
needs rather than our own drug development efforts makes our product and service
offerings more attractive to our customers.
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OUR STRATEGY
Our objective is to create and commercialize a complete, integrated and
highly efficient drug discovery platform optimized to overcome many of the
limitations associated with the slow and expensive traditional drug discovery
process. To implement our objective, we intend to:
OFFER AN INTEGRATED AND COMPLETE DRUG DISCOVERY SOLUTION FROM DRUG TARGET
TO DRUG CANDIDATE. We intend to offer our customers a complete suite of drug
discovery technologies, products and services that address speed and cost
considerations in the drug discovery process. We currently offer large
ready-made proprietary libraries of highly characterized, drug-like compounds
and sell Directed Sorting instrument systems to help our customers rapidly build
compound libraries, both of which we believe speed the generation of hits and
leads. We have expertise in developing assays and offer high throughput
screening (HTS) services. We offer medicinal chemistry lead optimization
services and use our proprietary informatics to support all steps of the drug
discovery process. We expect to complete the creation of our drug discovery
platform by adding products and services at the early stages of drug discovery
in drug target validation and at the later stages, including expanding into ADME
and toxicology services.
BROADEN AND DEEPEN OUR TECHNOLOGY THROUGH INTERNAL INVENTION AND
ACQUISITION. We have assembled our current suite of advanced technologies,
products and services through both internal invention and acquisition. Our lead
optimization capabilities and our Directed Sorting instrument systems and
consumables were internally developed. Our assay development and screening
capabilities, our ability to generate and sell large discovery libraries of
compounds and our informatics technology and products were all gained through
acquisition. We intend to continue to invest in internal research and
development and aggressively acquire and integrate cutting edge products and
services in order to stay at the forefront of drug discovery technology.
TARGET THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES. We will focus on
providing drug discovery products and services to the pharmaceutical and
biotechnology markets. In a 2000 report, Pharmaceutical Research and
Manufacturers of America estimates that the pharmaceutical industry alone will
spend more than $25 billion on research and development in 2000, of which more
than 30% will be spent on compound synthesis and natural product extraction,
screening, and pharmacological and pre-clinical ADME and toxicology. Before our
recent acquisitions of AAT, Discovery Technologies and Structural Proteomics,
the pharmaceutical and biotechnology industries provided 96% of our revenues in
1999, and we expect a large portion of our revenues to come from those
industries for the foreseeable future. We currently have 16 business development
and marketing personnel targeting pharmaceutical and biotechnology customers
worldwide. Due to the similar nature of pharmaceutical development and
agrochemical development, we also sell our products and services to the
agrochemical industry and expect to do so in the future. Further, we do not
intend to compete with our customers by conducting drug discovery for our own
account.
EXPAND CUSTOMER RELATIONSHIPS THROUGH INTEGRATION OF PRODUCTS AND
SERVICES. We will use existing relationships with customers in individual areas
of our business to sell products and services in multiple areas of drug
discovery. We believe that our customers can best take advantage of the time and
cost efficiencies of our products and services in integrated combinations. For
example, we believe that our lead optimization group will be in the best
position to optimize hits generated using our compound libraries because our
group will best understand the underlying synthesis chemistry.
GENERATE MULTIPLE REVENUE STREAMS. We sell a variety of products and
services and have more than 100 customers. Our multiple revenue streams reduce
the potential negative consequences to us if any one of our product or service
areas ceases to be as productive. We expect to continue to sell to our customers
primarily for current revenue but when appropriate, we also may accept milestone
payments or royalties based on the success of the ultimate pharmaceutical
product. We believe that the success of our business is not dependent upon the
realization of milestone or royalty payments.
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EXPAND OUR KNOWLEDGE BASE. Because of the large number and diversity of our
customers, we generate and are exposed to large amounts of highly useful
information about the drug discovery process and about the general interaction
between types of chemistries and types of drug targets. Much of this information
is not specific to or proprietary to our customers and increases our
understanding of the interaction of the drug targets we work on and the
chemistries we apply to them as well as of the drug discovery process itself. We
believe this information will enable our customers and us to conduct drug
discovery work faster, less expensively and with a greater likelihood of
success. Our ultimate goal is to use this information to streamline the drug
discovery process and to create new revenue opportunities for us.
PRODUCTS AND SERVICES
We sell products and services designed to make the drug discovery process
faster, less expensive and more likely to generate a drug candidate. We offer
these products and services through our four principal business groups, ChemRx
Advanced Technologies (which includes the former AAT), Discovery Technologies,
IRORI and Structural Proteomics. As described below, we currently offer products
and services in many functional disciplines of the drug discovery process. We
intend to continue to add to our functional offerings in order to provide a
comprehensive and integrated suite of drug discovery services to our
pharmaceutical and biotechnology customers.
ASSAYS
Our Discovery Technologies group provides assay development services for
pharmaceutical, biotechnology and agrochemical discovery. Our team of scientists
is particularly experienced in working with major disease target types such as
protein kinases, G-protein-coupled receptors, cellular assays, specific assays
in the cancer field and crop protection assays. We are highly experienced with
all commonly used detection technologies including photometric, fluorometric,
luminometric, homogeneous time resolved fluorescence, fluorescence polarization
and isotopic with flash plate or filtration readouts. Biological systems about
which we have particular expertise include enzymes, receptor-ligand interaction,
protein-protein interaction, reporter-gene assay in pro- and eukaryotic cells,
cellular proliferation, differentiation and physiologic response, and microbial
growth. We have performed approximately 60 assay development and screening
projects for approximately 15 customers including Japan Tobacco, Novartis Crop
Protection and BioChem Pharma.
COMPOUND LIBRARIES
COMBINATORIAL CHEMISTRY INSTRUMENTS -- DIRECTED SORTING TECHNOLOGY. Through
our IRORI line of products and services, we develop, manufacture and sell
proprietary instruments and consumables for compound library synthesis to
pharmaceutical and biotechnology organizations. Our products are based on a
patented core technology referred to as Directed Sorting.
- Directed Sorting -- Our Directed Sorting technology produces discrete
compounds in large amounts, synthesized with very high productivity. Our
technology has been widely adopted throughout the industry, and we
estimate that in 1999 over one million compounds were synthesized by our
customers using this technique. Directed Sorting combines the key
advantages, while avoiding the drawbacks, of the two traditional
synthesis techniques -- parallel synthesis and split-and-pool synthesis.
- Parallel synthesis -- Parallel synthesis yields discrete compounds and
large amounts of each compound. Virtually all chemists in the industry
find this result favorable. However, a large number of reactions must be
performed to generate large libraries. Automating parallel
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synthesis helps to eliminate the tedium of the process, but does little
to address the limited number of compounds that can be synthesized per
unit time and per reaction.
- Split-and-pool synthesis -- The split-and-pool technique is significantly
more productive than parallel synthesis but produces compounds in
mixtures whose components must be identified using various tagging and
screening techniques. Therefore, this technique has found limited
commercial applicability.
In the Directed Sorting process, each unique compound in a library is
synthesized in a separate micro-reactor that contains a unique, electronically
readable tagging device. A micro-reactor is a semi-porous container that allows
the chemical reagents and solvents used in the synthesis process to pass in and
out of it without allowing the compound being synthesized inside to escape. In
this way, tens, hundreds or even thousands of micro-reactors can be processed
simultaneously through a synthesis step in the same reaction vessel, which can
be a large flask or beaker. At the end of each chemical synthesis step, the
sorting of the micro-reactors for the next synthesis step is directed by a
computer that reads the electronic tags. The sharing of reaction vessels by many
micro-reactors provides huge productivity gains. For example, a 1,000 compound
library that results from a three-step synthesis procedure using ten reagents in
each step is completed with Directed Sorting using only 30 reactions. Using
parallel synthesis, this same library would require between 1,110 and 3,000
reactions to complete.
Our current products based on the Directed Sorting technology include an
automated chemistry system (the AutoSort System) and a manual chemistry system.
We are also developing an ultra-high throughput chemistry system that can
generate up to one million discrete compounds per year (the NanoKan System). All
of these systems include hardware and software platforms and use disposable
microreactors that provide ongoing revenues for every compound that is
synthesized using these products. Typical library sizes generated by the manual
chemistry system are less than 1,000 compounds, by the AutoSort System are 1,000
to 10,000 compounds and by the NanoKan System are greater than 10,000 compounds.
We have over 100 customers using the Directed Sorting technology.
The NanoKan System is designed for customers that need to generate up to
one million compounds per year. We are currently under contract to develop
NanoKan Systems for Bristol-Myers Squibb and Aventis and expect to deliver both
systems in 2000. Under these agreements, we have retained the rights to use this
technology internally and may deliver this product to additional customers after
one year following delivery to Bristol-Myers Squibb and Aventis.
PROPRIETARY LIBRARIES. Through our ChemRx Advanced Technologies group we
offer a broad range of compound libraries for assay screening and rapid
hit-to-lead activities. Our customers for compound libraries include Allergan,
Daiichi and Warner-Lambert.
Discovery Libraries. We generate and sell proprietary discovery libraries,
which are collections of diverse, drug-like compounds that are designed using
computer programs to systematically explore specified areas of chemical space or
types of chemistry. They are used in the initial stages of screening in which
very little information is known about which compounds will alter the activity
of the drug target in the assay. To date, we have produced over 450,000 diverse
compounds comprising over 100 distinct libraries. We are generating new
compounds at a rate of approximately 250,000 per year.
Targeted Libraries. We design and sell targeted libraries, which are
preferentially active for a specified type of drug target. These libraries are a
group of highly related compounds used much like discovery libraries, but they
provide a more insightful medicinal chemistry starting point.
Focused Libraries. We are able to rapidly generate focused libraries based
on hits from our discovery or targeted libraries because we have previously
invested significant resources in the
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development of each library of compounds. Focused libraries explore subtle
changes in the compound structure to quickly elicit structure-activity
relationships (SARs) and evolve lead compounds. In addition, we develop focused
libraries from hits generated by our customers.
Chemistry Protocols. We may sell licenses to the detailed protocols, or
chemical recipes, for generating our libraries to customers that purchase those
libraries. This enables our customers to replenish compounds and to create
additional compounds.
We have created and use a combinatorial chemistry technology platform
employing parallel synthesis and our Directed Sorting system. Our approach
provides the following advantages:
- Purity: Maximum purity is important to minimize false positives during
screening. We can deliver compounds that are greater than 90% pure
depending on customer specifications. Our quality control measures
include high performance liquid chromatography (HPLC), mass spectroscopy
(MS), nuclear magnetic resonance (NMR), evaporative light scattering
detection (ELSD) and weight percent analysis, coupled with a proprietary
high throughput purification process;
- Diversity: Each library of approximately 5,000 drug-like compounds is
designed to contain a set of highly diverse compounds using our
proprietary three-dimensional chemical mapping and differentiation
software;
- Ease of optimization: The individual chemistries for each library are
highly validated and characterized. This allows rapid generation of
focused libraries around hits and rapid follow-up and modification by
medicinal chemistry programs; and
- Re-supply and reproducibility: Our synthesis approaches produce large
quantities that allow rapid and cost effective restocking of customers'
supplies. Our highly validated chemistries allow us or our customers to
re-synthesize larger quantities on demand.
SCREENING
Through our Discovery Technologies group, we offer a wide range of assay
development services and ultra-high throughput screening services to customers
in the pharmaceutical, biotechnology and agrochemical industries. We have an
experienced staff of scientists located at our facility near Basel, Switzerland.
For an additional fee, we also offer our customers access to over 600,000
compounds from many of the world's leading compound suppliers plus over 450,000
internally developed compounds. This unique combination of offerings has
achieved rapid market acceptance. We currently have 15 assay development and
screening customers including BioChem Pharma, Japan Tobacco and Novartis Crop
Protection.
We can perform a wide range of assays in our HTS-Factory, including
heterogeneous and homogeneous time-resolved fluorescence assays, isotopic
assays, fluorescence polarization assays and enzyme-linked immuno sorbent assays
(ELISA). We are currently developing proprietary technologies for G-protein
coupled receptors (GPCR) and protein-protein interaction screening. This broad
capability allows us to offer screening services for virtually any type of
biological or biochemical target.
Our HTS-Factory is based on a proprietary platform of integrated
automation, instrumentation, liquid handling, engineering, robotics, computers
and sophisticated data collection software. The HTS-Factory has a screening
capacity of more than 100,000 compounds per day for most biochemical assays.
A majority of our screening customers also take advantage of our access to
compounds produced by other leading compound library providers. This unique
offering allows our customers access to a large and diverse collection of
compounds without the need to store and manage the compound collections in their
own facilities.
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We deliver a list of hits to our screening customers. We also provide hit
follow-up and verification services and, in many cases, actual physical samples
of the hit compounds. We anticipate that our screening services will lead to
additional revenue opportunities based on requests for chemistry-based hit and
lead optimization services.
HITS-TO-OPTIMIZED-LEADS
Through our ChemRx Advanced Technologies group, we offer the following
products and services.
FOCUSED LIBRARIES. We design and produce custom focused libraries based
upon hits identified from screening. These hits may be from our compound
libraries, the customer's internal compound collection or even from another
compound library supplier. Focused libraries comprise combinatorially generated
compounds that represent systematic variations of hits. They are used to begin
refining hits to optimize the properties that have an effect on the drug target
in the assay. Because we invest significant resources in the development of each
of our compound libraries, we are able to generate focused libraries based on
hits from our discovery or targeted libraries more rapidly than when we begin
from an isolated hit resulting from a customer's compound collection.
We now have approximately 120 scaffolds, the molecular cores around which
compound libraries are built, with validated chemistries and 30 additional
scaffolds in development from which focused libraries may be produced. Our
focused library customers include Axys Pharmaceuticals, Kirin, Pharmacia and
Roche.
MEDICINAL CHEMISTRY. We also provide a wide range of medicinal chemistry
and lead optimization services. In advancing a hit to a drug candidate, we use
focused libraries and/or traditional medicinal chemistry methods. This includes
the synthesis of compounds that modify the original hit or lead for improved
potency, selectivity and other pharmaceutical characteristics. We have an
experienced group of synthetic organic chemists and medicinal chemists with
expertise in both solid phase chemistry and solution phase chemistry. In some
cases we provide medicinal chemistry services in conjunction with our
computational drug discovery efforts to design and construct small libraries of
compounds to act on specific targets of known structure. Our customers for hit
to lead services include AstraZeneca, DGI Biotechnologies, DuPont
Pharmaceuticals, Hisamitsu and Signal Pharmaceuticals.
DRUG DISCOVERY INFORMATICS
Through our majority-owned Structural Proteomics group, we are developing
computational tools that we believe will allow us to substantially increase our
knowledge, which can be applied in the earlier stages of drug discovery to
significantly reduce the time and cost of developing a drug. We currently have
computer algorithms that allow us to design libraries of compounds with maximum
diversity, thereby reducing the redundancy within our libraries and reducing the
number of compounds which must be screened to achieve the same result. Screened
against large numbers of potential drug targets, we believe these large and
highly diverse libraries will provide significant information about which drug
targets are amenable to modulation by chemical means. We are developing a
protein (drug target) family analysis tool which we believe will allow us to use
screening data to correlate drug target families with the types of compounds
which will likely bind to them. Using this tool, we hope to be able to design
highly effective targeted libraries for whole drug target families, to
efficiently design potent analogs to a hit on a particular drug target and to
efficiently search databases of compounds available from other vendors for
likely hits. We expect to further use our computational tools and screening data
to help predict ADME and toxicological reactions to classes of compounds. This
will allow our customers to avoid spending money and time on hits and leads that
will ultimately fail due to their ADME and toxicological characteristics.
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We currently have two Small Business Innovation Research (SBIR) grants to
support this work, and we have signed a licensing and collaborative development
agreement with SmithKline Beecham to improve methods for protein family analysis
and the use of this information in drug design.
SALES AND MARKETING
Our senior executives coordinate global management of our key customers and
manage our general sales and marketing efforts for our drug discovery offerings
to major pharmaceutical customers world-wide. In addition, each of our three
largest business groups directs its own sales and marketing efforts as follows:
CHEMRX ADVANCED TECHNOLOGIES. In the United States and Europe, our ChemRx
Advanced Technologies group has three senior business development employees. In
Japan, we employ a third party to provide marketing assistance but negotiate
contractual agreements directly with our customers.
DISCOVERY TECHNOLOGIES. In the United States and Europe, our Discovery
Technologies group consists of three senior business development employees. In
Japan, we employ a third party to provide marketing assistance but negotiate
contractual agreements directly with our customers.
IRORI. In the United States and Europe, we sell and service our IRORI
products through a direct sales and service organization of seven people. In
Japan, we employ a third party importer and distributor for sales, marketing and
service. We also use industry trade shows and industry journal advertising as a
source of additional leads for our direct sales efforts of IRORI products. We
have a marketing staff of three people to support this effort.
RESEARCH AND DEVELOPMENT
Our research and development expenses totaled approximately $4.1 million in
1997, $5.1 million in 1998 and $3.5 million in 1999. We conduct research and
development programs in four primary areas as follows:
CORE INSTRUMENTATION TECHNOLOGY. These projects include the development of
new instrumentation technologies of the type that led to the development of our
current IRORI products, including the NanoKan System. Core technology projects
have also expanded beyond synthesis technology to include the development of
other drug discovery instrumentation. We implement projects on our own behalf
and in collaboration with customers to develop specific instruments we identify
as product opportunities. In collaborative projects, we seek to retain the
intellectual property and commercialization rights.
DRUG DISCOVERY INFORMATICS. We have initiated drug discovery informatics
projects that we believe will lead to a host of new products and services. We
have begun to develop informatics tools that will aid in the design of new
compound libraries that are optimized for potency toward a specific drug target
and minimized for interactions with other undesired targets. Additionally, we
are developing computational software and algorithms that may provide rapid
advances in the areas of high throughput genomic sequencing, high throughput
protein structure determination and cell-based and target-based virtual
screening.
CHEMISTRY AND CHEMISTRY PROCESS DEVELOPMENT. Our chemistry and chemistry
process development programs are designed to give us a competitive advantage in
the number of compound libraries available to us and in the quality and
reproducibility of the libraries. We have initiated an effort to expand our
combinatorial chemistry programs into the area of natural products chemistry
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to further increase the drug-like qualities of our compound libraries. We have
also launched research and development projects to develop chemistry-based
products for target validation.
ASSAY DEVELOPMENT AND HIGH THROUGHPUT SCREENING. We are investing in new
assay development and high throughput screening (HTS) technologies that we
believe will allow us to broaden our product and service offerings. We are
continually expanding our portfolio of assays and believe that current research
and development programs will allow us to address virtually every type of
homogeneous or heterogeneous drug discovery assay, and a wide range of
agrochemical assays. Our high throughput screening (HTS) facility is
operational, and we have initiated programs designed to increase both its
capabilities and capacity.
CUSTOMERS
The following commercial customers have purchased one or more of our drug
discovery products and services.
PHARMACEUTICAL, AGRICULTURAL AND OTHER COMPANIES
3M Company
Abbott
Allergan
American Cyanamid
Amgen
Ares-Serono
AstraZeneca
Aventis
Bayer
Boehringer Ingelheim
Bristol-Myers Squibb
Daiichi
Dainippon Pharmaceuticals
Dow Agro Sciences
DuPont Pharmaceuticals
Eli Lilly
Glaxo Wellcome
Hisamitsu Pharmaceutical
Hoffmann-LaRoche
Japan Tobacco
Johnson & Johnson
Kirin
L'Oreal
Merck
Merck KgaA
Novartis
Organon (Akzo Nobel)
Monsanto
Parke-Davis (Warner-
Lambert)
Pfizer
Pharmacia & Upjohn
Procter & Gamble
Rhone-Poulenc
Agrochemicals
Schering Plough
SmithKline Beecham
Synthelabo
Takeda
Wyeth Ayerst Research
(AHP)
Zeneca Agrochemicals
BIOTECHNOLOGY COMPANIES
3-Dimensional Pharmaceuticals
Analyticon
Biogen
BioMega
Cephalon
Coelacanth Chemical Corporation
CombiChem
Corvas
Cubist
Elitra
Epix Medical
Genentech
Genetics Institute (AHP)
Genomic Institute of the
Novartis Research
Foundation
Gilead Sciences
Guilford Pharmaceuticals
Intercardia
IRBM
ISIS Pharmaceuticals
Magainin Pharmaceuticals
Menarini Ricerche
Metaphore Pharmaceuticals
Mitotix
Molecumetics
NeoKimia
Novalon
Orchid Biocomputers
Protein Design Labs
Signal Pharmaceuticals
Synaptic
Versicor
Vertex
INTELLECTUAL PROPERTY
To establish and protect our proprietary technologies and products, we rely
on a combination of patent, copyright, trademark and trade secrets laws, as well
as confidentiality provisions in our contracts.
We have implemented an aggressive patent strategy designed to maximize our
intellectual property rights. We are pursuing patent coverage in the United
States and those foreign countries that are home to the majority of our
anticipated customer base. We currently own fourteen issued patents in the
United States and have received notices of allowance for four additional patent
applications. In addition, our patent portfolio includes pending patent
applications in the United States and corresponding international and foreign
filings in major industrial nations.
United States patents issued from applications filed prior to June 8, 1995
have a term of the longer of 20 years from the earliest priority date or 17
years from issue. Fourteen of our
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applications were filed prior to June 8, 1995 and nine of these applications
have issued. United States patents issued from applications filed on or after
June 8, 1995 have a term of 20 years from the application filing date or earlier
claimed priority. Patents in most other countries have a term of 20 years from
the date of filing of the patent application. Our remaining patent applications,
including the applications from which five of our issued patents were derived,
were filed after June 8, 1995. Because the time from filing to issuance of
patent applications is often several years, this process may result in a
shortened period of patent protection, which may adversely affect our ability to
exclude competitors from our markets. Our issued United States patents have
expiration dates ranging from April 2015 to July 2017. Our success will depend
to a significant degree upon our ability to develop proprietary products and
technologies and to obtain patent coverage for the products and technologies. We
intend to continue to file patent applications covering any newly-developed
products and technologies.
Patents provide some degree of protection for our proprietary technology.
However, the pursuit and assertion of patent rights, particularly in areas like
pharmaceuticals and biotechnology, involve complex legal and factual
determinations and, therefore, are characterized by some uncertainty. In
addition, the laws governing patentability and the scope of patent coverage
continue to evolve, particularly in biotechnology. As a result, patents might
not issue from any of our patent applications or from applications licensed to
us. The scope of any of our issued patents may not be sufficiently broad to
offer meaningful protection. In addition, our issued patents or patents licensed
to us may be successfully challenged, invalidated, circumvented or rendered
unenforceable so that our patent rights might not create an effective
competitive barrier. Moreover, the laws of some foreign countries may not
protect our proprietary rights to the same extent as do the laws of the United
States. Any patents issued to us or our strategic partners may not provide a
legal basis for establishing an exclusive market for our products or provide us
with any competitive advantages or that the patents of others will not have an
adverse effect on our ability to do business or to continue to use our
technologies freely. In view of these factors, our intellectual property
positions bear some degree of uncertainty.
The source code for our proprietary software is protected both as a trade
secret and as copyrighted works.
We also rely in part on trade secret protection of our intellectual
property. We attempt to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants. Our
employees also sign agreements requiring that they assign to us their interests
in inventions and original expressions and any corresponding patents and
copyrights arising from their work for us. However, it is possible that these
agreements may be breached, invalidated or rendered unenforceable, and if so,
there may not be an adequate corrective remedy available. Despite the measures
we have taken to protect our intellectual property, parties to our agreements
may breach the confidentiality provisions in our contracts or infringe or
misappropriate our patents, copyrights, trademarks, trade secrets and other
proprietary rights. In addition, third parties may independently discover or
invent competing technologies or reverse engineer our trade secrets or other
technology.
Although we are not a party to any legal proceedings, in the future, third
parties may file claims asserting that our technologies or products infringe on
their intellectual property. We cannot predict whether third parties will assert
such claims against us or our licensees or against the licensors of technology
licensed to us, or whether those claims will harm our business. If we are forced
to defend against such claims, whether they are with or without merit, and
whether they are resolved in favor of or against us, our licensees or our
licensors, we will incur significant expenses and diversion of management's
attention and resources. As a result of such disputes, we may have to develop at
a substantial cost non-infringing technology or enter into licensing agreements.
These agreements, if necessary, may be unavailable on terms acceptable to us, or
at all, which could seriously harm our business or financial condition.
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COMPETITION
Competition across the spectrum of drug discovery products and services
that we offer is fragmented. However, we face intense competition from a number
of companies, including those listed below, in each of the functional areas of
drug discovery that we serve.
- Assay development and screening. Aurora Biosciences, Cambridge Drug
Discovery, Cerep, Evotec, Oncogene Sciences, Pharmacopeia, Tripos, Tropix
division of PE Biosystems.
- Combinatorial chemistry instruments. Argonaut, Bohdan and Mimotopes.
- Compound libraries and lead optimization. Albany Molecular Research,
ArQule, Array Biopharma, Cambridge Drug Discovery, Oxford Asymmetry,
Pharmacopeia and Tripos.
- Informatics. MSI division of Pharmacopeia, Oxford Molecular and Tripos.
Also, in many cases, our pharmaceutical company customers have internal
departments which provide products and services similar to ours, so these
customers may have limited needs for our products and services. Many of our
competitors listed above have greater financial, operational, sales and
marketing resources than we have. In addition, these competitors and other
companies or research or academic institutions may have developed or could in
the future develop new technologies that compete with our products and services
or that could render some or all of our products and services obsolete. Any of
these or other competitors could also broaden the scope of their drug discovery
offerings through acquisition, collaboration or internal development to
integrate their offerings and/or compete with us in all phases of drug
discovery.
GOVERNMENT REGULATION
We are subject to various federal, state and local laws and regulations
relating to the protection of the environment. In the course of our business, we
are involved in the handling, storage and disposal of chemicals. The laws and
regulations applicable to our operations include provisions that regulate the
discharge of materials into the environment. Usually these environmental laws
and regulations impose "strict liability," rendering a person liable without
regard to negligence or fault on the part of such person. Such environmental
laws and regulations may expose us to liability for the conduct of, or
conditions caused by, others. We have not been required to expend material
amounts in connection with our efforts to comply with environmental requirements
and we do not believe that compliance with such requirements will have a
material adverse effect upon our capital expenditures, results of operations or
competitive position. Because the requirements imposed by these laws and
regulations are frequently changed, we are unable to predict the cost of
compliance with these requirements in the future, or the effect of these laws on
our capital expenditures, results of operations or competitive position.
EMPLOYEES
As of May 5, 2000, we had 190 employees, of which 115 are in research and
development, 16 are in business development, sales and marketing, 26 are in
general and administrative, and 33 are in manufacturing. None of our employees
is covered by a collective bargaining agreement.
FACILITIES
We occupy approximately 34,500 combined square feet of leased office space
and other facilities in San Diego, California for our headquarters and as the
base for our marketing and product support operations, research and development
and manufacturing activities. We occupy
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<PAGE> 44
approximately 30,000 square feet of subleased office and laboratory space near
San Francisco, California for some of our combinatorial chemistry activities. In
addition, we also occupy approximately 12,000 square feet of leased space near
Basel, Switzerland for our assay development and high throughput screening (HTS)
services.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation that arises through the
normal course of business. As of the date of this prospectus, we are not a party
to any litigation we believe could reasonably be expected to have a material
adverse effect on our business or results of operations.
SCIENTIFIC ADVISORY BOARD
We have established a scientific advisory board made up of leading scholars
in various functional disciplines of the drug discovery process. Members of our
scientific advisory board consult with us on matters relating to the development
of our products and services described elsewhere in this prospectus. Members of
our scientific advisory board are reimbursed for the reasonable expenses of
attending meetings of the scientific advisory board. Some of the members may
also receive options to purchase shares of our common stock. The members of our
scientific advisory board are as follows:
<TABLE>
<CAPTION>
ADVISOR TITLE/INSTITUTION
------- -----------------
<S> <C>
Paul Anderson, Ph.D. ......... Vice President, DuPont Pharmaceuticals
Daniel Bellus, Ph.D. ......... Professor of Organic Chemistry, University of Fribourg,
Switzerland
Colin Dollery, Ph.D. ......... Senior Consultant, R&D, SmithKline Beecham
Gerd Folkers, Ph.D. .......... Professor of Pharmaceutical Chemistry,
ETH-Zurich-Irchel
Barry Honig, Ph.D. ........... Department of Biochemistry and Molecular Biophysics,
Columbia University
Richard Labaudiniere, Former Senior Director, Lead Discovery, Rhone-Poulenc
Ph.D. ...................... Rorer
K.C. Nicolaou, Ph.D. ......... Chairman, Department of Chemistry, The Scripps Research
Institute
Julius Rebek, Ph.D. .......... Director, The Skaggs Institute for Chemical Biology
Michael C. Venuti, Ph.D. ..... Senior Vice President Research, Axys Pharmaceuticals
</TABLE>
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<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following persons are our executive officers, directors and key
employees as of May 5, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers and Directors
Riccardo Pigliucci.................. 53 President, Chief Executive Officer and Chairman
Jack Fitzpatrick.................... 46 Chief Financial Officer, Vice President Finance
and Administration and Secretary
David Coffen, Ph.D.................. 61 Chief Scientific Officer
A. Grant Heidrich, III(2)........... 47 Director
Dieter Hoehn(1)..................... 59 Director
Alan J. Lewis, Ph.D.(1)............. 54 Director
Donald B. Milder(2)................. 46 Director
Andrew E. Senyei, M.D.(1)........... 50 Director
John P. Walker(2)................... 51 Director
Key Employees
Richard Brown, Ph.D................. 47 President, IRORI
Arnold Hagler, Ph.D................. 58 Chief Executive Officer, Structural Proteomics
John Lillig......................... 50 Chief Technologist
Robert Reed, Ph.D. ................. 38 President, ChemRx Advanced Technologies
Heinrich Zinsli, Ph.D............... 58 Chief Executive Officer, Discovery Technologies
</TABLE>
- -------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Riccardo Pigliucci has served as our President and Chief Executive Officer
since May 1998 and chairman of our board of directors since May 1999. He
previously served as Chief Executive Officer of Life Sciences International PLC,
a supplier of scientific equipment and consumables to research, clinical and
industrial markets, from 1996 to 1997. Prior to that, he held numerous
management positions during his 23-year career at Perkin-Elmer Corporation, a
life science and analytical instrument company, including President and Chief
Operating Officer from 1993 to 1995. Mr. Pigliucci is also a director of Epoch
Pharmaceuticals, Inc., a biotechnology company, Biosphere Medical, a medical
device company, and Dionex Corporation, a provider of instrumentation and
related accessories and chemicals, and a trustee of The Worcester Foundation for
Biomedical Research, a not-for-profit biomedical research foundation. He is a
member of the Advisory Board of Chemical & Engineering News. He received his
degree in industrial chemistry from the Chemical Institute of Milan, Italy.
Jack Fitzpatrick has served as our Chief Financial Officer since September
1997. From 1995 until joining us, he served as Chief Financial Officer of
Broadband Innovations, Inc., a telecommunications technology company formerly
known as Multichannel Communication Sciences, Inc. Mr. Fitzpatrick received a
B.A. in applied mathematics, an M.S. in computer science and an M.B.A. from
Harvard University.
David Coffen, Ph.D. has served as our Chief Scientific Officer since
November 1998. From 1995 until joining us, he served as Senior Vice President of
Chemistry at ArQule, Inc., a drug discovery company focusing on lead generation,
qualification and optimization programs. Prior to joining ArQule, Dr. Coffen
held the position of Vice President Molecular Sciences at Hoffmann-La Roche
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<PAGE> 46
Inc., a research-oriented healthcare group, where he served in numerous research
and development positions during his 24-year career. Dr. Coffen received a B.S.
in chemistry from the University of Toronto and a Ph.D. in organic chemistry
from the Massachusetts Institute of Technology.
A. Grant Heidrich, III has served as a member of our board of directors
since October 1995. He joined Mayfield Fund, a venture capital firm, in 1982 and
has been a general partner or managing member of several venture capital funds
affiliated with Mayfield Fund since 1983. Mr. Heidrich serves on the board of
directors of Millennium Pharmaceuticals, Inc., a genomics and life-sciences
research company, and serves as Chairman of Tularik Inc., a biotechnology
company. He received a B.A. in human biology from Stanford University and an
M.B.A. from Columbia University Graduate School of Business.
Dieter Hoehn has served as a member of our board of directors since
November 1996. Since May 1996, Mr. Hoehn has been a self-employed management
consultant. From 1984 until 1996, he was a member of the senior corporate
management of the Hewlett-Packard Company, a provider of computing and imaging
products, measurement solutions and services, where he served as Vice President
in charge of the Bioscience Program from May 1995 until his retirement in April
1996 and Vice President in charge of the Analytical Products Group from May 1987
to April 1995. Mr. Hoehn also served as Vice Chairman of the Board of Directors
of Hewlett-Packard Shanghai Analytical Products Co., Ltd., China, an analytical
instruments company, and as a director of Yokogawa Analytical Systems, Inc.,
Japan, an analytical instruments company, until April 1999. He is a member of
the Advisory Board of the Barnett Institute at Northeastern University. Mr.
Hoehn received a B.S. in electrical engineering from the Technical College in
Loerrach, Germany.
Alan J. Lewis, Ph.D. has served as a member of our board of directors since
April 2000. Since 1996, Dr. Lewis has been Chief Executive Officer and a
director of Signal Pharmaceuticals, Inc., a drug discovery company. From 1994 to
1996, he was President of Signal. Prior to joining Signal, Dr. Lewis worked for
15 years at the Wyeth-Ayerst Research division of American Home Products
Corporation, a pharmaceutical company, where he served as Vice President of
Research from 1990 to 1994. Dr. Lewis currently serves as a Director of Allergan
Specialty Therapeutics, Inc. a pharmaceutical company. Dr. Lewis received a B.S.
in physiology and biochemistry from Southampton University and a Ph.D. in
pharmacology from the University of Wales in Cardiff and completed his
post-doctoral training at Yale University.
Donald B. Milder has served as a member of our board of directors since
November 1996. Since March 1989, he has served as a general partner of
Crosspoint Venture Partners, a venture capital firm. From September 1985 to
March 1989, Mr. Milder served as Chief Executive Officer of Infusion Systems, a
medical delivery device company. Mr. Milder serves as a director of Websense,
Inc., a provider of employee Internet management products. He received a B.A. in
economics from Union College and an M.B.A. from Harvard Business School.
Andrew E. Senyei, M.D. has served as a member of our board of directors
since April 1995. He has served as managing partner of Enterprise Partners, a
venture capital firm, since 1999 and as general partner since 1988. Prior to
joining Enterprise Partners, Dr. Senyei was a practicing clinician and Adjunct
Associate Professor of Obstetrics, Gynecology and Pediatrics at the University
of California, Irvine. Dr. Senyei received a B.A. in biology from Occidental
College and an M.D. from Northwestern University.
John P. Walker has served as a member of our board of directors since April
2000. Since February 1993, Mr. Walker has served as Chairman, Chief Executive
Officer and a director of Axys Pharmaceuticals, Inc., a public biopharmaceutical
company. Since 1996, Mr. Walker has been Chairman of the Board of Signal
Pharmaceuticals, Inc., a drug discovery company. From 1993 to December 1997, he
was President and Chief Executive Officer of Arris Pharmaceutical Corporation, a
predecessor corporation of Axys. Prior to his association with Arris, Mr. Walker
was the Chairman and Chief Executive Officer of Vitaphore Corporation, a
biomaterials company which was sold in
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<PAGE> 47
1990 to Union Carbide, a company operating in the plastics and chemicals
industry. Mr. Walker serves as Chairman of the Board of Directors of Microcide
Pharmaceuticals, Inc., a biotechnology company, and as a director of Geron
Corporation, a biotechnology company, and the Biotechnology Industry
Organization. He received a B.A. from the State University of New York, at
Buffalo.
Richard Brown, Ph.D. has served as President of our IRORI group since
August 1999 and has been with us since 1996. From 1983 to 1995, he served as
Director of Marketing for Zymark Corporation, a provider of laboratory
automation products and services. Dr. Brown received a B.A. in chemistry from
Massachusetts State College and a Ph.D. in chemistry from the University of
Massachusetts.
Arnold Hagler, Ph.D. has served as Chief Executive Officer and Chairman of
Structural Proteomics since May 2000. In 1997, Dr. Hagler founded
ScienceMedia.com, an educational software company, and currently serves as its
CEO and Chairperson. From 1984 to June 1997, Dr. Hagler was with Biosym
Technologies, Inc., a computational software company which he founded. Since
1998 Dr. Hagler has been Adjunct Professor of Chemistry at the University of
Massachusetts at Amherst. He received a B.S. in chemistry and a Ph.D. in
physical chemistry from Cornell University.
John Lillig has served as Chief Technologist since August 1999 and has been
with us as a Vice President since August 1996. From 1991 until 1996, he served
as Division Manager of the Analytical Systems Division of Bio-Rad Laboratories,
a provider of analytical instrumentation and clinical diagnostics. Prior to
that, Mr. Lillig served as Director of Engineering for over 18 years at Beckman
Instruments, a provider of laboratory systems. Mr. Lillig received a B.S. in
electrical engineering from California Polytechnical University.
Robert Reed, Ph.D. has served as President of ChemRx Advanced Technologies
since April 2000. Prior to that, he served as President of Axys Advanced
Technologies, Inc. a subsidiary of Axys Pharmaceuticals, Inc., a public
biopharmaceutical company, from July 1999 until Axys Advanced Technologies was
acquired by us. Dr. Reed was Vice President and General Manager of the Advanced
Technologies Division of Axys Pharmaceuticals from January 1998 to July 1999. He
joined Axys Pharmaceuticals in April 1997 as Senior Director of Corporate
Development. From February 1995 until April 1997, Dr. Reed was Manager of
Strategic Research and Development in the pharmaceutical products division of
Abbott Laboratories, a health care products and services company. Dr. Reed
received a B.S. in biochemistry from Miami University and a Ph.D. in
biochemistry from Boston University School of Medicine, specializing in
structural biophysics.
Heinrich Zinsli, Ph.D. has served as Chief Executive Officer of Discovery
Technologies since September 1999. Prior to that, beginning in 1997, he served
as its Chairman. From 1989 until 1996, he was the head of Corporate Business
Development at Ciba-Geigy Ltd., a chemical and pharmaceutical company. Dr.
Zinsli also serves as a director of Paradigm Genetics, a biotechnology company,
and Plasmon, PLC, a biotechnology company. Dr. Zinsli had over 30 years of
experience at Ciba-Geigy Ltd. He received his Ph.D. in economics from the
University of St. Gall, Switzerland.
CLASSIFIED BOARD
Our board of directors currently has seven members. Our Delaware
certificate of incorporation will provide for a classified board of directors
consisting of three classes of directors, each serving staggered three-year
terms. As a result, a portion of our board of directors will be elected each
year. Class I directors' terms will expire at the annual meeting of stockholders
to be held in 2001, Class II directors' terms will expire at the annual meeting
of stockholders to be held in 2002, and Class III directors' terms will expire
at the annual meeting of stockholders to be held in 2003. The Class I directors
will be Mr. Hoehn and Mr. Milder, the Class II directors will be Dr. Senyei and
Mr. Walker, and the Class III directors will be Mr. Heidrich, Dr. Lewis and Mr.
Pigliucci. At each
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<PAGE> 48
annual meeting of stockholders held after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election until the third annual meeting following election. In
addition, our bylaws provide that the authorized number of directors may be
changed by an amendment to the bylaws, duly adopted by the board of directors or
by the stockholders, or by a duly adopted amendment to our certificate of
incorporation. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors.
BOARD COMMITTEES
The audit committee of the board of directors was established in May 1999
and reviews, acts on and reports to the board of directors on various auditing
and accounting matters, including the recommendation of our independent
auditors, the scope of the annual audits, fees to be paid to the independent
auditors, the performance of our independent auditors and our accounting
practices. The members of our audit committee are Mr. Hoehn, Dr. Lewis and Dr.
Senyei, each of whom is an independent director.
The compensation committee of the board of directors was established in May
1999 and determines the salaries of management employees and benefits for our
employees, consultants, directors and other individuals compensated by us. The
compensation committee also administers our stock option plans, including
determining the stock option grants for our employees, consultants, directors
and other individuals. The members of our compensation committee are Mr.
Heidrich, Mr. Milder and Mr. Walker, each of whom is an independent director.
DIRECTOR COMPENSATION
We currently pay each of our non-employee directors $1,000 per board
meeting attended and $500 for each committee meeting attended, plus the
reimbursement of related expenses. In addition, each current non-employee
director will receive a non-qualified option to purchase 25,000 shares of our
common stock upon the consummation of this offering, each non-employee director
will receive a yearly grant of a non-qualified stock option to purchase 10,000
shares of our common stock, and each new non-employee director will be granted a
non-qualified stock option to purchase 25,000 shares of our common stock. Each
of these option grants will be made pursuant to the terms of our 2000 Stock
Incentive Plan.
In the past, we entered into Directorship Agreements with two of our
non-employee directors. These agreements provided for payments to the
non-employee director of $1,500 per full business day that the non-employee
director performed his duties as a director, plus the reimbursement of related
expenses. In addition, these agreements provided for a one-time grant of a
non-qualified stock option to purchase 10,000 shares of our common stock
pursuant to the terms of our 1995 Stock Option/Stock Issuance Plan to be made at
the time of execution of the agreements. We entered into a Directorship
Agreement with current director Dieter Hoehn on December 16, 1996 and
concurrently granted Mr. Hoehn a non-qualified stock option to purchase 10,000
shares of our common stock. This agreement was terminated by us and Mr. Hoehn in
May 2000. In 1999, we paid Mr. Hoehn a total of $7,000 under this agreement. We
also entered into a Directorship Agreement with former director Dr. Paul
Anderson on March 1, 1996 and concurrently granted Dr. Anderson a non-qualified
stock option to purchase 10,000 shares of our common stock. This agreement
expired when Dr. Anderson ceased serving as a member of our board of directors.
In 1999, we paid Dr. Anderson a total of $4,500 under this agreement.
We also issued Mr. Hoehn 5,000 shares of our common stock pursuant to the
terms of our 1995 Stock Option/Stock Issuance Plan on April 23, 1997, and we
granted Mr. Hoehn a non-qualified
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<PAGE> 49
option to purchase 10,000 shares of our common stock pursuant to the terms of
our 1995 Stock Option/Stock Issuance Plan on August 12, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Mr. Heidrich, Mr. Milder
and Mr. Walker. No member of the compensation committee has been an officer or
employee of ours at any time. None of our executive officers serves as a member
of the board of directors or compensation committee of any other company that
has one or more executive officers serving as a member of our board of directors
or compensation committee. Prior to the formation of the compensation committee
in May 1999, the board of directors as a whole made decisions relating to
compensation of our executive officers.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws covers at least negligence and gross negligence on the part of
the indemnified parties. Our bylaws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by our
directors or executive officers in any action or proceeding arising out of that
person's services as a director or executive officer of Discovery Partners
International, Inc., any subsidiary of Discovery Partners International Inc. or
any other entity to which the person provides services at our request. In
addition, we maintain directors' and officers' insurance. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
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<PAGE> 50
EXECUTIVE COMPENSATION
The following table shows all compensation received during the year ended
December 31, 1999 by our Chief Executive Officer and our four other highest-paid
executive officers in that year (collectively referred to as the Named Executive
Officers). The table also shows the capacity in which they served, or the title
they had, in 1999 while earning that compensation.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
------------------- OPTIONS/ ALL OTHER
NAME SALARY BONUS SARS COMPENSATION
---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
RICCARDO PIGLIUCCI........................ $350,000 $123,958 -- $129,416(1)
President and Chief Executive Officer
DAVID COFFEN.............................. 219,000 -- 100,000 --
Chief Scientific Officer
JOHN LILLIG............................... 198,334 47,500 -- --
Chief Technologist; Vice President of
Research and Development
JACK FITZPATRICK.......................... 196,513 47,500 -- --
Chief Financial Officer; Vice President
Finance and Administration
RICHARD BROWN............................. 195,477 47,500 -- --
President, IRORI; Vice President of
Business Development
</TABLE>
- -------------------------
(1) Consists of payment to Mr. Pigliucci for reimbursement of relocation
expenses and mortgage assistance.
OPTIONS
The following table shows information regarding options granted to the
executive officers listed in the summary compensation table above during 1999.
Each option represents the right to purchase one share of our common stock.
The options generally become vested over four years. See "Management -- Employee
Benefit Plans" for more details regarding these options. In 1999, we granted
options to purchase an aggregate of 191,500 shares of common stock to officers,
employees, directors and consultants.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
required by rules of the SEC and do not represent our estimate or projection of
our future common stock prices. These amounts represent assumed rates of
appreciation in the value of our common stock from $1.50, the fair market value
on the date of grant as determined by our board of directors. Actual gains, if
any, on stock option exercises are
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<PAGE> 51
dependent on the future performance of our common stock and overall stock market
conditions. The amounts reflected in the table may not necessarily be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------- ANNUAL RATES OF
NUMBER OF APPRECIATION OF
SECURITIES % OF TOTAL STOCK PRICE FOR
UNDERLYING OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE PER EXPIRATION --------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
David Coffen(1).............. 100,000 52.2 $1.50 01/22/09 $94,334 $239,061
</TABLE>
- -------------------------
(1) Such option vests according to our standard four-year vesting schedule, with
a vesting commencement date of November 16, 1998.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
ACQUIRED 1999 DECEMBER 31, 1999*
UPON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Riccardo Pigliucci... 170,000 $187,000 -- -- -- --
David Coffen......... -- -- 100,000 -- $100,000 --
John Lillig.......... -- -- 100,000 -- 210,000 --
Jack Fitzpatrick..... -- -- 160,000 -- 343,500 --
Richard Brown........ -- -- 160,000 -- 343,400 --
</TABLE>
- -------------------------
* Based on a fair market value at December 31, 1999 of $2.50 per share, as
determined by our board of directors.
EMPLOYMENT AGREEMENTS
On May 5, 1998, we entered into an employment agreement with Mr. Pigliucci
to serve as our President and Chief Executive Officer. This agreement provides
an indefinite term and is terminable by Mr. Pigliucci or us at any time without
cause. Under this agreement, Mr. Pigliucci will be paid an annual base salary of
$350,000 (subject to upward adjustments) and an annual target bonus equal to 50%
of his base salary (which bonus will be prorated for partial performance of
annual goals). In addition, under this agreement we reimbursed Mr. Pigliucci
$129,416 for relocation expenses and mortgage assistance in moving from the
Weston, Connecticut area to the San Diego area, and Mr. Pigliucci was granted an
option to purchase 600,000 shares of our common stock, which vests over a
four-year period, with 25% vesting upon the completion of one year of service
and the remainder vesting in equal monthly installments over the next 36 months
of service. Mr. Pigliucci exercised this option in full in December 1998 and
January 1999 and, at Mr. Pigliucci's election, the purchase price for such
shares was paid in the form of two promissory notes to us bearing the minimum
applicable federal interest rate. Mr. Pigliucci was also granted the right to
maintain his percentage ownership of our equity by purchasing equity securities
that are offered by us at any time (with limited enumerated exceptions) on the
same terms and conditions as other
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<PAGE> 52
purchasers, which right does not apply to shares offered in this offering and
terminates upon the sale of securities in this offering.
If Mr. Pigliucci's employment is terminated by us other than for cause, or
is terminated by Mr. Pigliucci upon our breach of this employment agreement
(including in the event this employment agreement is not assumed in full by a
successor company upon a change in control), Mr. Pigliucci will automatically be
retained as a consultant to us for one year. Under this arrangement, Mr.
Pigliucci will be available to provide consulting services to us for up to
fifteen hours each month, and he will be paid a monthly consulting fee of
one-twelfth of his base salary at the time of termination of his employment.
BENEFIT PLANS
2000 STOCK INCENTIVE PLAN
Introduction. Our 2000 Stock Incentive Plan is intended to serve as the
successor equity incentive program to our 1995 Stock Option/Stock Issuance Plan.
Our 2000 plan was adopted by our board in May 2000 and approved by the
stockholders in May 2000. Our 2000 plan will become effective on the date the
underwriting agreement for this offering is signed. At that time, all
outstanding options under the predecessor 1995 plan will be transferred to our
2000 plan, and no further option grants will be made under that predecessor
plan. The transferred options will continue to be governed by their existing
terms, unless our compensation committee elects to extend one or more features
of our 2000 plan to those options. Except as otherwise noted below, the
transferred options have substantially the same terms as will be in effect for
grants made under the discretionary option grant program of our 2000 plan.
Share Reserve. 3,300,000 shares of common stock have been authorized for
issuance under our 2000 plan including shares rolled over from our 1995 plan and
the AAT Stock option plan which we assumed. The number of shares of common stock
reserved for issuance under our 2000 plan will automatically increase on the
first trading day in January each calendar year, beginning in calendar year
2001, by an amount equal to 2% of the total number of shares of common stock
outstanding on the last trading day in December of the preceding calendar year,
but in no event will any such annual increase exceed 2,000,000 shares. In
addition, no participant in our 2000 plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of common stock per calendar year.
Equity Incentive Programs. Our 2000 plan is divided into five separate
components:
- the discretionary option grant program, under which eligible individuals
in our employ or service may be granted options to purchase shares of
common stock at an exercise price not less than 100% of the fair market
value of those shares on the grant date;
- the stock issuance program, under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at a
price not less than 100% of their fair market value at the time of
issuance or as a bonus tied to the attainment of performance milestones
or the completion of a specified period of service;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition of
special below-market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to our non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
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<PAGE> 53
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of the annual
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our 2000 plan
include our officers and other employees, our non-employee board members and any
consultants we hire.
Administration. The discretionary option grant program and the stock
issuance program will be administered by the compensation committee of our board
of directors. This committee will determine which eligible individuals are to
receive option grants or stock issuances under those programs, the time or times
when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding. The compensation committee will also have the exclusive authority
to select the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is activated for one or more calendar years.
Plan Features. Our 2000 plan will include the following features:
- The exercise price for the shares of common stock subject to option
grants made under our 2000 plan may be paid in cash or in shares of
common stock valued at fair market value on the exercise date. The option
may also be exercised through a same-day sale program without any cash
outlay by the optionee. In addition, the plan administrator may provide
financial assistance to one or more optionees in the exercise of their
outstanding options or the purchase of their unvested shares by allowing
such individuals to deliver a full-recourse, interest-bearing promissory
note in payment of the exercise price and any associated withholding
taxes incurred in connection with such exercise or purchase.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including options
transferred from the 1995 plan, in return for the grant of new options
for the same or a different number of option shares with an exercise
price per share based upon the fair market value of our common stock on
the new grant date.
- Stock appreciation rights are authorized for issuance under the
discretionary option grant program. Such rights will provide the holders
with the election to surrender their outstanding options for an
appreciation distribution from us equal to the fair market value of the
vested shares of common stock subject to the surrendered option, less the
aggregate exercise price payable for those shares. Such appreciation
distribution may be made in cash or in shares of common stock. None of
the outstanding options under our 1995 plan contain any stock
appreciation rights.
- The 2000 plan will include the following change in control provisions
which may result in the accelerated vesting of outstanding option grants
and stock issuances:
-- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program
which is not to be assumed by the successor corporation will
automatically accelerate in full, and all unvested shares under
the discretionary option grant and stock issuance programs will
immediately vest, except to the extent our repurchase rights with
respect to those shares are to be assigned to the successor
corporation.
-- The compensation committee will have complete discretion to
structure one or more options under the discretionary option grant
program so those options will vest as to all the option shares in
the event those options are assumed in the acquisition but the
optionee's service with us or the acquiring entity is
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<PAGE> 54
subsequently terminated. The vesting of outstanding shares under
the stock issuance program may be accelerated upon similar terms
and conditions.
-- The compensation committee will also have the authority to grant
options which will immediately vest in the event we are acquired,
whether or not those options are assumed by the successor
corporation.
-- The compensation committee may grant options and structure
repurchase rights so that the shares subject to those options or
repurchase rights will vest in connection with a successful tender
offer for more than 50% of our outstanding voting stock or a
change in the majority of our board through one or more contested
elections for board membership. Such accelerated vesting may occur
either at the time of such transaction or upon the subsequent
termination of the individual's service.
-- The options currently outstanding under our 1995 plan will
immediately vest in the event we are acquired by merger or sale of
substantially all our assets, unless those options are assumed by
the acquiring entity or our repurchase rights with respect to any
unvested shares subject to those options are assigned to such
entity.
Salary Investment Option Grant Program. In the event the compensation
committee elects to activate the salary investment option grant program for one
or more calendar years, each of our executive officers and other highly
compensated employees selected for participation may elect, prior to the start
of the calendar year, to reduce his or her base salary for that calendar year by
a specified dollar amount not less than $10,000 nor more than $50,000. Each
selected individual who files such a timely election will automatically be
granted, on the first trading day in January of the calendar year for which his
or her salary reduction is to be in effect, an option to purchase that number of
shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of our common stock on the grant
date. The option will be exercisable at a price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal to
the amount by which the optionee's salary is reduced under the program. The
option will become exercisable in a series of 12 equal monthly installments over
the calendar year for which the salary reduction is to be in effect.
Automatic Option Grant Program. Under the automatic option grant program,
each individual who first becomes a non-employee board member at any time after
the completion of this offering will automatically receive an option grant for
25,000 shares on the date such individual joins the board, provided such
individual has not been in our prior employ. In addition, on the date of each
annual stockholders meeting held after the completion of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 10,000 shares of common stock,
provided such individual has served on our board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
25,000-share automatic option grant will vest in a series of 4 successive annual
installments upon the optionee's completion of each year of board service over
the 4-year period measured from the grant date. The shares subject to each
annual 10,000-share automatic option grant will vest upon the optionee's
completion of one year of board service measured from the grant date. However,
the shares will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability while a board member.
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<PAGE> 55
Director Fee Option Grant Program. Should the director fee option grant
program be activated in the future, each non-employee board member will have the
opportunity to apply all or a portion of any cash retainer fee for the year to
the acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for which
the retainer fee would otherwise be payable in cash. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date, and the number of shares subject to the option
will be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of our common stock on
the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the portion of the retainer fee
applied to that option. The option will become exercisable in a series of 12
equal monthly installments over the calendar year for which the fee election is
to be in effect. However, the option will become immediately exercisable for all
the option shares upon the optionee's death or disability while serving as a
board member.
Our 2000 plan will also have the following features:
- Outstanding options under the salary investment, automatic option and
director fee option grant programs will immediately vest if we are
acquired by a merger or asset sale or if there is a successful tender
offer for more than 50% of our outstanding voting stock or a change in
the majority of our board through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
- The board may amend or modify the 2000 plan at any time, subject to any
required stockholder approval. The 2000 plan will terminate no later than
May 2010.
EMPLOYEE STOCK PURCHASE PLAN.
Introduction. Our Employee Stock Purchase Plan was adopted by the board in
May 2000 and approved by the stockholders in May 2000. The plan will become
effective immediately upon the signing of the underwriting agreement for this
offering. The plan is designed to allow our eligible employees and the eligible
employees our participating subsidiaries to purchase shares of common stock, at
semi-annual intervals, with their accumulated payroll deductions.
Share Reserve. 250,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to 1.5% of the total number of outstanding shares of our common
stock on the last trading day in December in the prior calendar year. In no
event will any such annual increase exceed 500,000 shares.
Offering Periods. The plan will have a series of successive overlapping
offering periods, with a new offering period beginning on the first business day
of February and August each year. Each offering period will have a duration of
24 months, unless otherwise determined by the compensation committee. However,
the initial offering period may have a duration in excess of 24 months and will
start on the date the underwriting agreement for this offering is signed and
will end on the last business day of July 2002. The next offering period will
start on the first business day in August 2000 and will end on the last business
day of July 2002.
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<PAGE> 56
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date of that period. However, employees may participate in only one
offering period at a time.
Payroll Deductions. A participant may contribute up to 10% of his or her
base salary through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the start date of the offering period in which the participant is enrolled
or, if lower, 85% of the fair market value per share on the semi-annual purchase
date. Semi-annual purchase dates will occur on the last business day of January
and July each year. However, a participant may not purchase more than 1,000
shares on any purchase date, and not more than 300,000 shares may be purchased
in total by all participants on any purchase date. Our compensation committee
will have the authority to change these limitations for any subsequent offering
period.
Reset Feature. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price in effect for each
participant will be equal to 85% of the market value per share on the start date
of the offering period in which the participant is enrolled at the time the
acquisition occurs or, if lower, 85% of the fair market value per share
immediately prior to the acquisition.
Termination. The plan will terminate no later than the last business day of
July 2010.
AXYS ADVANCED TECHNOLOGY, INC. 1999 EQUITY INCENTIVE PLAN
The Axys Advanced Technology, Inc. 1999 Equity Incentive Plan was assumed
in connection with our acquisition of AAT. The 1999 Equity Incentive Plan will
continue in existence following the acquisition; however, no further option
grants will be made under the Plan. The plan was adopted by the AAT Board on
September 30, 1999 and approved by the AAT shareholders on the same date.
Currently, 677,236 options are outstanding under the Plan which continue to be
governed by their existing terms. The outstanding options are either incentive
stock options or non-statutory stock options which were granted at an exercise
price of not less than 100% of the fair market value of the AAT common stock on
the grant date. The majority of the options granted under the 1999 Equity
Incentive Plan vest according to a four-year schedule. In accordance with the
terms of the individual stock option agreements, in the event that AAT is
acquired by merger or asset sale the options under the 1999 Equity Incentive
Plan will either (i) allow the acquiring corporation to assume any outstanding
options or substitute similar stock awards or (ii) in the event the options are
not assumed or substituted with similar stock awards, the options shall
terminate and cease to be outstanding if not exercised prior to the acquisition.
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<PAGE> 57
RELATED PARTY TRANSACTIONS
SALES OF PREFERRED STOCK
Since January 1, 1997 through May 5, 2000, we have issued the following
securities in private placement transactions:
- 333,333 shares of our Series C convertible preferred stock, at a purchase
price of $6.00 per share, for an aggregate purchase price of $1,937,139
in October 1997;
- 2,228,945 shares of our Series D convertible preferred stock, at a
purchase price of $7.20 per share, for an aggregate purchase price of
$16,016,741 in May and June 1998; and
- 1,392,503 shares of our Series E convertible preferred stock, at a
purchase price of $8.00 per share, for an aggregate purchase price of
$11,140,024 in April 2000.
All preferred stock was issued to accredited investors in reliance upon
exemption from registration under Regulation D of the Securities Act.
The purchasers of more than $60,000 of these securities include, among
others, the following directors of Discovery Partners International:
<TABLE>
<CAPTION>
SHARES OF
PREFERRED STOCK
-------------------- TOTAL
NAME SERIES D SERIES E CONSIDERATION
---- -------- -------- -------------
<S> <C> <C> <C>
Andrew Senyei, M.D.(1)..................................... 141,622 256,519 $3,071,829
A. Grant Heidrich, III(2).................................. 328,820 256,520 4,419,661
Donald B. Milder(3)........................................ 494,614 251,589 5,573,928
Riccardo Pigliucci......................................... 13,889 -- 100,000
</TABLE>
- -------------------------
(1) Consists of 131,198 shares of Series D Preferred Stock and 237,639 shares of
Series E Preferred Stock held by Enterprise Partners III, L.P. and 10,424
shares of Series D Preferred Stock and 18,880 shares of Series E Preferred
Stock held by Enterprise Partners III Associates, L.P. Dr. Senyei, the
managing partner of each of these entities, disclaims beneficial ownership
in such shares, except to the extent of his pecuniary interest in each of
the limited partnerships.
(2) Consists of 312,379 shares of Series D Preferred Stock and 243,694 shares of
Series E Preferred Stock held by Mayfield VIII and 16,441 shares of Series D
Preferred Stock and 12,826 shares of Series E Preferred Stock held by
Mayfield Associates Fund II. Mr. Heidrich, a general partner of each of
these entities, disclaims beneficial ownership in such shares, except to the
extent of his pecuniary interest in each of the limited partnerships.
(3) Consists of 77,947 shares of Series D Preferred Stock held by Crosspoint
Venture Partners-1996 and 416,667 shares of Series D Preferred Stock and
251,589 shares of Series E Preferred Stock held by Crosspoint Venture
Partners LS-1997. Mr. Milder, a general partner of each of these entities,
disclaims beneficial ownership in such shares, except to the extent of his
pecuniary interest in each of the limited partnerships.
ISSUANCES OF PROMISSORY NOTES AND WARRANTS
Since January 1, 1997 through May 5, 2000, we have issued promissory notes
and warrants to purchase our capital stock in the transactions described below:
On February 2, 1998, we borrowed a total of $1,500,000 from Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P., Mayfield VIII,
Mayfield Associates Fund II, and Crosspoint Venture Partners-1996. Each of these
lending parties was issued a convertible promissory note
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<PAGE> 58
bearing interest at 8% per annum. In addition, each of these parties was issued
a warrant to purchase a number of shares of our common stock that was tied to
the amount of time that the promissory note held by such party had any unpaid
balance. Each warrant has an exercise price of $0.40 and is to expire upon the
consummation of this offering.
On April 15, 1998, we borrowed an additional total of $900,000 from
Enterprise Partners III, L.P., Enterprise Partners III Associates, L.P.,
Mayfield VIII, Mayfield Associates Fund II, and Crosspoint Venture
Partners-1996, and each of these lending parties was issued an additional
convertible promissory note bearing interest at 8% per annum. In addition, each
of these parties was issued a warrant to purchase a number of shares of our
common stock that was tied to the amount of time that the promissory note held
by such party had any unpaid balance. Each warrant has an exercise price of
$0.48 and is to expire upon the consummation of this offering.
On May 22, 1998, each of the convertible promissory notes referenced above
was satisfied in full by converting such note into shares of our Series D
Preferred Stock, and in connection with those conversions the number of shares
for which each warrant referenced above is exercisable was set, in each case
according to the following table:
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
TOTAL PRINCIPAL UNDERLYING UNDERLYING
AND INTEREST 2/2/98 4/15/98
NAME CONVERTED WARRANT WARRANT
---- --------------- ------------ ------------
<S> <C> <C> <C>
Enterprise Partners III, L.P. ................... $944,625 18,868 4,471
Enterprise Partners III Associates, L.P. ........ 75,051 1,499 355
Mayfield VIII.................................... 824,127 16,461 3,901
Mayfield Associates Fund II...................... 43,375 866 205
Crosspoint Venture Partners-1996................. 561,216 11,210 2,656
</TABLE>
On December 10, 1999, we borrowed a total of $4,000,000 from Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P., Mayfield VIII, and
Mayfield Associates Fund II. Each of these lending parties was issued a
convertible promissory note bearing interest at 8% per annum. In addition, each
of these parties was issued a warrant to purchase a number of shares of our
Series E Preferred Stock that was tied to the amount of time that the promissory
note held by such party had any unpaid balance. Each warrant has an exercise
price of $5.00 and is to expire upon the consummation of this offering.
On March 9, 2000, we borrowed an additional $2,000,000 from Crosspoint
Venture Partners LS-1997, and Crosspoint Venture Partners LS-1997 was issued a
convertible promissory note bearing interest at 8% per annum. In addition,
Crosspoint Venture Partners LS-1997 was issued a warrant to purchase a number of
shares of our Series E Preferred Stock that was tied to the amount of time that
its promissory note had any unpaid balance. This warrant has an exercise price
of $5.00 and is to expire upon the consummation of this offering.
On April 7, 2000, each of the convertible promissory notes issued on
December 10, 1999 and March 9, 2000 was satisfied in full by converting such
note into shares of our Series E Preferred Stock, and in connection with those
conversions the number of shares for which each warrant
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<PAGE> 59
issued on December 10, 1999 and March 9, 2000 is exercisable was set, in each
case according to the following table:
<TABLE>
<CAPTION>
SHARES OF SERIES E
TOTAL PRINCIPAL PREFERRED STOCK
AND INTEREST UNDERLYING
NAME CONVERTED WARRANT
---- --------------- ------------------
<S> <C> <C>
Enterprise Partners III, L.P. ................ $1,901,112 72,487
Enterprise Partners III Associates, L.P. ..... 151,040 5,759
Mayfield VIII................................. 1,949,552 74,334
Mayfield Associates Fund II................... 102,608 3,912
Crosspoint Venture Partners LS-1997........... 2,012,712 78,246
</TABLE>
CERTAIN OPTION GRANTS AND EXERCISES
On May 5, 2000, Arnold Hagler received an option to purchase 50,000 shares
of our common stock at a per-share exercise price of $8.00. Twenty-five percent
of the shares that are subject to Dr. Hagler's option vest on each anniversary
of the grant date.
In connection with our acquisition of AAT on April 28, 2000 we assumed
AAT's outstanding stock options. Accordingly, Robert Reed's AAT option was
assumed and now represents an option to purchase 225,000 shares of our common
stock.
On January 19, 2000, we granted Dr. Heinrich Zinsli an option to purchase
75,000 shares of our common stock at a per-share price of $2.50 with a standard
four year vesting schedule, with a vesting commencement date of January 1, 2000.
The 1999 stock option grant to David Coffen is described under the caption
"Management -- Options."
From January 1, 1997 through December 31, 1998, we granted options to
purchase our common stock to our directors and executive officers in the
following transactions:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
UNDERLYING
NAME DATE OF GRANT OPTION EXERCISE PRICE
---- ------------- ------------ --------------
<S> <C> <C> <C>
Richard Brown..................................... 6/4/97 15,000 $0.20
Jack Fitzpatrick.................................. 9/26/97 75,000 0.30
Richard Brown..................................... 11/25/97 43,000 0.40
Jack Fitzpatrick.................................. 11/25/97 5,000 0.40
John Lillig....................................... 11/25/97 20,000 0.40
Riccardo Pigliucci................................ 5/8/98 600,000 0.40
John Lillig....................................... 5/8/98 80,000 0.40
Richard Brown..................................... 5/8/98 80,000 0.40
Jack Fitzpatrick.................................. 5/8/98 80,000 0.40
Dieter Hoehn...................................... 8/12/98 10,000 1.50
</TABLE>
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<PAGE> 60
Since January 1, 1997, options to purchase our common stock were exercised
by our directors and executive officers in the following transactions:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON TOTAL
DATE OF STOCK CONSIDERATION
NAME EXERCISE PURCHASED EXERCISE PRICE PAID
---- -------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Riccardo Pigliucci....................... 11/30/98 430,000 $0.40 $172,000
Riccardo Pigliucci....................... 1/31/99 170,000 0.40 68,000
Dieter Hoehn............................. 1/18/00 10,000 0.30 3,000
Dieter Hoehn............................. 1/18/00 10,000 1.50 15,000
Richard Brown............................ 3/22/00 22,000 0.20 4,400
Richard Brown............................ 3/22/00 15,000 0.30 4,500
Richard Brown............................ 3/22/00 21,500 0.40 8,600
Jack Fitzpatrick......................... 3/22/00 75,000 0.30 22,500
</TABLE>
OTHER TRANSACTIONS
On May 5, 2000, we entered into a Stock Purchase Agreement with Structural
Proteomics, pursuant to which we acquired 75% of the outstanding shares of
Structural Proteomics for a total consideration of $1.0 million in cash and
150,000 shares of our common stock. The cash portion of this consideration was
for newly issued shares of Structural Proteomics. Arnold Hagler owns 5.5% of the
outstanding shares of Structural Proteomics.
In connection with our acquisition of voting stock of Structural
Proteomics, on May 5, 2000 we entered into a Rights Agreement with Arnold Hagler
and two other shareholders of Structural Proteomics (collectively, the
"Founders") pursuant to which Structural Proteomics granted us a right of first
offer with respect to all future sales of any class or series of its capital
stock. This right of first offer does not apply to securities issued in
connection with strategic alliances, and it terminates just prior to Structural
Proteomics' initial public offering. In addition, we granted the Founders the
option, acting as a group on the first anniversary of the closing of this
offering, to exchange up to 25% of the Structural Proteomics stock that they
held as of the closing of this offering for a number of shares of our common
stock that is based upon a valuation of the common stock of Structural
Proteomics that depends upon the total revenues of Structural Proteomics over
the previous 12-month period. On each subsequent anniversary of the closing of
this offering, the Founders will have the right to similarly exchange an
additional 25% of the Structural Proteomics stock they held as of the closing of
this offering (plus all other stock eligible to be exchanged pursuant to this
agreement that has not previously been exchanged). Further, the Founders granted
us the option to exchange shares of our common stock for a portion of the shares
of Structural Proteomics stock held by the founders. If on the first anniversary
of the closing of this offering all issued and outstanding shares of Structural
Proteomics stock are valued in the aggregate above $30.0 million, we will have
the option to exchange our stock for up to 25% of the Structural Proteomics
stock held by the Founders as of the closing of this offering. The number of
shares of our stock to be exchanged will be calculated on the same basis as for
the Founders' option. On each subsequent anniversary of the closing of this
offering, we will have the option to similarly exchange our stock for an
additional 25% of the Structural Proteomics stock held by the Founders as of the
closing of this offering (plus all other stock eligible to be exchanged pursuant
to this agreement that has not previously been exchanged). If on the first
anniversary of the closing of this offering all issued and outstanding shares of
Structural Proteomics stock are valued in the aggregate below $30.0 million, our
option reverts to an option, exercisable on the third anniversary of the closing
of this offering, to exchange 50% of the Structural Proteomics stock held by the
Founders on the date of the closing of this offering for our stock. In that
case, the remaining 50% of such
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<PAGE> 61
stock would be subject to our exchange option on the fourth anniversary of the
closing of this offering.
On April 28, 2000, we acquired AAT from Axys Pharmaceuticals, Inc. John P.
Walker, a member of our board of directors, is Chairman, Chief Executive Officer
and a director of Axys Pharmaceuticals. Axys Pharmaceuticals owned 10,000,000
shares of the 10,006,250 issued and outstanding shares of common stock of AAT,
and received 7,425,000 shares of our common stock, a promissory note in the
principal amount of $550,000 and $50,000 in cash as merger consideration. In
connection with this merger, we also issued a warrant to Axys to purchase
200,000 shares of our common stock at a per-share price of $8.00.
In connection with our acquisition of AAT, we have entered into a
Standstill Agreement with Axys Pharmaceuticals, Inc. pursuant to which Axys
Pharmaceuticals has agreed for itself and its affiliates that until the later of
the date on which Axys Pharmaceuticals and its affiliates hold less than 5% of
our then-outstanding common stock or April 28, 2010, Axys and its affiliates
will not, without our prior written consent: (a) acquire any of our voting
securities or those of our subsidiaries, (b) solicit proxies for the voting of
our voting securities, (c) make any public announcement or submit any proposal
for any extraordinary transaction (other than a sale) of our voting securities
or assets, (d) form or join in any group for the voting of our voting securities
or (e) otherwise seek to influence our management, board or policies. In
addition, we agreed that at each annual meeting of our stockholders at any time
during which our shares are publicly traded, we will include on our management
slate of director nominees the number of persons designated by Axys
Pharmaceuticals that Axys Pharmaceuticals could elect (if "cumulative voting"
was applicable) solely through the voting of our voting securities that it owns,
provided that in any case the maximum number of such persons will be one less
than the number that would constitute a majority of the members of our board of
directors. In addition, as long as we have a classified board of directors, this
will be construed in each year to allow such number of nominees minus the number
of previous Axys Pharmaceuticals nominees who will remain on the Board because
their three-year terms do not expire that year. After this offering, Axys
Pharmaceuticals would be entitled under the Standstill Agreement to nominate 2
of our 7 directors. The 2 designated Axys Pharmaceuticals initial nominees are
John Walker and Alan Lewis. Axys Pharmaceuticals agreed, in the Standstill
Agreement, to vote each year for the entire management slate of director
nominees.
On August 19, 1999, we entered into a Voting Share Purchase Agreement with
all of the holders of voting shares of Discovery Technologies, Ltd. ("DTL"),
which included Dr. Heinrich Zinsli. Pursuant to this agreement, we purchased
forty percent of the voting stock of DTL for an aggregate purchase price of
2,750,000 Swiss francs, which was equivalent to $1.7 million as of March 31,
2000 and we were given the option to purchase the remaining sixty percent of the
voting stock of DTL prior to January 31, 2000. Pursuant to the Second Closing
Protocol dated December 23, 1999, we exercised this option and purchased the
remaining sixty percent of the voting stock of DTL for an aggregate purchase
price of up to 4,250,000 Swiss francs, which was equivalent to $2.6 million as
of March 31, 2000, depending on DTL's revenues and EBITDA in each of 1999 and
2000. Dr. Zinsli sold a total of 13.34% of the voting stock of DTL to us
pursuant to these agreements and received from us a total of $442,788.
On August 10, 1999, DTL entered into an employment agreement with Dr.
Zinsli to serve as President of DTL. This agreement provides for a term of two
years, but will be extended indefinitely upon the mutual agreement of Dr. Zinsli
and DTL. Under this agreement, Dr. Zinsli will be paid an annual salary of
162,110 Swiss francs which on March 31, 2000 was equivalent to $97,833 and which
is subject to annual review and adjustment. In addition, Dr. Zinsli receives
annual payments of 40,000 Swiss francs for insurance, which on March 31, 2000
was equivalent to $24,140, 24,000 Swiss francs as compensation for being a
member of DTL's board of directors, which on March 31, 2000 was equivalent to
$14,484, 6,000 Swiss francs as a general allowance, which on
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<PAGE> 62
March 31, 2000 was equivalent to $3,621, and 800 Swiss franc as a car allowance,
which on March 31, 2000 was equivalent to $483.
Pursuant to our Key Employment Agreement with Riccardo Pigliucci, Mr.
Pigliucci exercised his right to borrow from us the aggregate exercise price of
$240,000 to purchase 600,000 shares of our common stock pursuant to stock
options held by Mr. Pigliucci. In connection with these exercises, Mr. Pigliucci
issued to us a promissory note dated November 30, 1998 and due November 30,
2005, having a principal amount of $172,000 and an interest rate of 4.51% per
annum prior to the maturity date and 10% thereafter. Mr. Pigliucci also issued
us a promissory note dated January 31, 1999 and due January 31, 2006, having a
principal amount of $68,000 and an interest rate of 4.64% per annum prior to the
maturity date and 10% thereafter. At the time Mr. Pigliucci issued each of these
notes to us, he also entered into a Pledge Agreement with us under which he
granted us a security interest in the shares that he purchased using the note as
consideration.
Dr. Paul Anderson, a member of our board of directors from March 1996 until
April 2000, serves as Vice President of DuPont Pharmaceuticals Company, a
significant customer of our ChemRx Advanced Technologies business unit. For the
years ended December 31, 1997, 1998, and 1999, revenues generated from DuPont
Pharmaceuticals were approximately $513,600, $364,300 and $402,910,
respectively.
Alan Lewis, a current member of our board of directors, has been Chief
Executive Officer and a director of Signal Pharmaceuticals, Inc. since 1996.
During 1998 and 1999, we performed services for Signal, and Signal paid us
approximately $350,000. In addition, since July 6, 1998 our ChemRx Advanced
Technologies group has been performing services for Signal for which Signal is
to pay our ChemRx Advanced Technologies group a fixed amount of $100,000 plus
various other amounts based on contingencies related to delivery and commercial
success of compounds. We acquired AAT, and Mr. Lewis joined our board of
directors, in April 2000.
Dr. Andrew Senyei, a current member of our board of directors, is a
director of Elitra Pharmaceuticals. Since September 30, 1999 AAT has been
performing services for Elitra for which Elitra is to pay a fixed amount of
$400,000 plus various other amounts based on contingencies related to delivery
and commercial success of compounds.
We have entered into indemnification agreements with all of our officers
and directors. These indemnification agreements will require us to indemnify our
officers and directors to the fullest extent permitted by Delaware law.
Arrangements pursuant to which certain of our stockholders are entitled to
have their shares registered by us for resale are described under the caption
"Description of Capital Stock."
We believe that all of our transactions with affiliates were entered into
on terms and conditions no less favorable to us than those that could have been
obtained from unaffiliated third parties.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table shows information known to us with respect to the
beneficial ownership of our common stock as of May 5, 2000, and as adjusted to
reflect the sale of the shares of common stock offered under this prospectus by:
- each person or group of affiliated persons who is known by us to own
beneficially 5% or more of our common stock;
- each of our directors;
- each executive officer listed in the "Summary Compensation" table above;
and
- all of our directors and executive officers as a group.
Except as indicated in the footnotes to this table and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of our common stock shown as
beneficially owned by them. Beneficial ownership and percentage ownership are
determined in accordance with the rules of the SEC. The table below includes the
number of shares underlying options and warrants which are exercisable within 60
days from May 5, 2000 and assumes the conversion of all shares of our preferred
stock into shares of our common stock prior to this offering. It is therefore
based on 17,437,204 shares of our common stock outstanding prior to this
offering and shares outstanding immediately after this offering.
The address for those individuals for which an address is not otherwise
indicated is: 9640 Towne Centre Drive, San Diego, California 92121.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OWNED PERCENT OWNED
SHARES BEFORE THIS AFTER THIS
BENEFICIAL OWNER OUTSTANDING OFFERING OFFERING
---------------- ----------- ------------- -------------
<S> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Riccardo Pigliucci................................ 614,007 3.5
Jack Fitzpatrick(1)............................... 160,000 * *
David Coffen(2)................................... 100,000 * *
John Lillig(3).................................... 185,000 1.1 *
Richard Brown(4).................................. 160,000 * *
Dieter Hoehn...................................... 25,000 * *
A. Grant Heidrich III(5).......................... 2,290,824 13.0
Alan J. Lewis..................................... 0 * *
Donald B. Milder(6)............................... 1,898,031 10.8
Andrew E. Senyei(7)............................... 2,385,782 13.4
John P. Walker(8)................................. 7,625,000 43.2
All directors and executive officers as a group
(14 persons)(9)................................. 15,610,832 82.8
OTHER FIVE PERCENT STOCKHOLDERS
Axys Pharmaceuticals, Inc.(10).................... 7,625,000 43.2
Entities Affiliated with Enterprise
Partners(11).................................... 2,385,782 13.4
Entities Affiliated with Mayfield Fund(12)........ 2,290,824 13.0
Entities Affiliated with Crosspoint
Ventures(13).................................... 1,898,031 10.8
</TABLE>
- -------------------------
* Less than 1.0%.
(1) Includes 85,000 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of May 5, 2000.
(2) Consists of 100,000 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of May 5, 2000.
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<PAGE> 64
(3) Includes 100,000 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of May 5, 2000.
(4) Includes 101,500 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of May 5, 2000.
(5) Includes 1,996,293 shares held by Mayfield VIII and 105,065 shares held by
Mayfield Associates Fund II. Mr. Heidrich, a general partner of each of
these entities, disclaims beneficial ownership in such shares, except to
the extent of his pecuniary interest in each of the limited partnerships.
Also includes 179,995 shares underlying outstanding warrants held by
Mayfield VIII and 9,471 shares underlying outstanding warrants held by
Mayfield Associates Fund II.
(6) Includes 1,086,955 shares held by Crosspoint Venture Partners-1996 and
671,822 shares held by Crosspoint Venture Partners LS-1997. Mr. Milder, a
general partner of each of these entities, disclaims beneficial ownership
in such shares, except to the extent of his pecuniary interest in each of
the limited partnerships. Also includes 61,008 shares underlying
outstanding warrants held by Crosspoint Venture Partners-1996 and 78,246
shares underlying outstanding warrants held by Crosspoint Venture Partners
LS-1997.
(7) Includes 1,881,709 shares held by Enterprise Partners III, L.P. and 160,848
shares held by Enterprise Partners III Associates, L.P. Dr. Senyei, the
managing partner of each of these entities, disclaims beneficial ownership
in such shares, except to the extent of his pecuniary interest in each of
the limited partnerships. Also includes 328,430 shares underlying
outstanding warrants held by Enterprise Partners III, L.P. and 14,795
shares underlying outstanding warrants held by Enterprise Partners III
Associates, L.P.
(8) Consists of 7,425,000 shares and a warrant to purchase 200,000 shares held
by Axys Pharmaceuticals, Inc. Mr. Walker, Chairman, Chief Executive Officer
and a director of Axys Pharmaceuticals, disclaims beneficial ownership in
such shares, except to the extent of his pecuniary interest in Axys
Pharmaceuticals.
(9) Includes each director and officer listed, and in addition includes Robert
Reed, Heinrich Zinsli and Arnold Hagler. Dr. Reed owns 42,188 options to
purchase our common stock that are exercisable within 60 days of May 5,
2000. Dr. Zinsli owns 75,000 options to purchase our common stock that are
exercisable within 60 days of May 5, 2000. Dr. Hagler owns 50,000 options
to purchase our common stock that are exercisable within 60 days of May 5,
2000.
(10) We have entered into a standstill agreement with Axys Pharmaceuticals, Inc.
pursuant to which Axys has agreed for itself and its affiliates not to
acquire any of our additional voting securities or those of our
subsidiaries, and not to undertake any proxy contest. The stockholder's
business address is 180 Kimball Way, South San Francisco, CA 94080.
(11) Includes 1,881,709 shares held by Enterprise Partners III, L.P. and 160,848
shares held by Enterprise Partners III Associates, L.P. Also includes
328,430 shares underlying outstanding warrants held by Enterprise Partners
III, L.P. and 14,795 shares underlying outstanding warrants held by
Enterprise Partners III Associates, L.P. The stockholder's business address
is 7979 Ivanhoe Ave., Suite 550, La Jolla, CA 92037.
(12) Includes 1,996,293 shares held by Mayfield VIII and 105,065 shares held by
Mayfield Associates Fund II. Also includes 179,995 shares underlying
outstanding warrants held by Mayfield VIII and 9,471 shares underlying
outstanding warrants held by Mayfield Associates Fund II. The stockholder's
business address is 2800 Sand Hill Road, Menlo Park, CA 94025.
(13) Includes 1,086,955 shares held by Crosspoint Venture Partners-1996 and
671,822 shares held by Crosspoint Venture Partners LS-1997. Also includes
61,008 shares underlying outstanding warrants held by Crosspoint Venture
Partners-1996 and 78,246 shares underlying outstanding warrants held by
Crosspoint Venture Partners LS-1997. The stockholder's business address is
18552 MacArthur Blvd., Suite 400, Irvine, CA 92612.
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<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock,
as well as options and warrants to purchase our common stock, and provisions of
our certificate of incorporation and our bylaws, all as will be in effect upon
the closing of this offering. This description is only a summary. You should
also refer to the certificate and bylaws which have been filed with the SEC as
exhibits to our registration statement, of which this prospectus forms a part.
The descriptions of the common stock and preferred stock, as well as options and
warrants to purchase our common stock, reflect changes to our capital structure
that will occur upon the closing of this offering in accordance with the terms
of the certificate of incorporation.
Upon completion of this offering, our authorized capital stock will consist
of shares of common stock, par value $0.001 per share and
shares of preferred stock, par value $0.001 per share.
COMMON STOCK
As of May 5, 2000, there were 9,420,792 shares of common stock outstanding
and held of record by 58 stockholders. There will be shares of
common stock outstanding upon the closing of this offering, which gives effect
to the issuance of shares of common stock offered by us under this
prospectus and the conversion of shares of preferred stock discussed below.
Each share of common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our stockholders and are entitled to one vote for each
share of common stock held.
Subject to the prior rights and preferences, if any, applicable to shares
of preferred stock or any series of preferred stock, the holders of common stock
are entitled to receive such dividends, payable in cash, stock or otherwise, as
may be declared by our board out of any funds legally available for the payment
of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the
holders of common stock will be entitled to receive after distribution in full
of the preferential amounts, if any, to be distributed to the holders of
preferred stock or any series of preferred stock, all of the remaining assets
available for distribution ratably in proportion to the number of shares of
common stock held by them. Holders of common stock have no preferences or any
preemptive conversion or exchange rights. The outstanding common stock is, and
the shares offered by us in this offering will be, when used in consideration
for payment thereof, fully paid and non-assessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future. Upon the closing of this
offering, there will be no shares of preferred stock outstanding.
PREFERRED STOCK
As of May 5, 2000, there were 7,954,781 shares of convertible preferred
stock outstanding. Upon the closing of this offering, all outstanding shares of
convertible preferred stock will be converted into 8,016,412 shares of common
stock and will be held of record by 14 stockholders. The convertible preferred
stock will no longer be authorized, issued or outstanding.
Upon the closing of this offering our board will be authorized to provide
for the issuance of shares of preferred stock in one or more series, and to fix
for each series voting rights, if any, designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions as provided in a resolution or resolutions adopted
by the board. The board may authorize the issuance of preferred stock with terms
and conditions which could discourage a takeover or other transaction that
holders of some or a majority of common
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<PAGE> 66
stock might believe to be in their best interests or in which holders of common
stock might receive a premium for their shares over the then market price. We
have no present plans to issue any shares of preferred stock.
WARRANTS
As of May 5, 2000, we have outstanding warrants to purchase:
- 443,116 shares of common stock, at a weighted average exercise price of
$3.69 per share;
- 225,406 shares of Series A preferred stock, at an exercise price of $2.00
per share, which shares are convertible into 227,440 shares of common
stock; and
- 234,738 shares of Series E preferred stock at an exercise price of $5.00
per share, convertible into common stock on a one-for-one basis.
All outstanding warrants for our capital stock will terminate upon
consummation of our initial underwritten public offering except for (i) warrants
to purchase 33,051 shares of Series A preferred stock (convertible into 33,349
shares of common stock) issued to Comdisco, Inc., and (ii) a warrant to purchase
200,000 shares of common stock issued to Axys Pharmaceuticals, Inc. The Comdisco
warrants will expire no later than February 9, 2006; and the Axys warrant will
expire no later than May 5, 2005.
OPTIONS
As of May 5, 2000, options to purchase a total of 1,867,847 shares of
common stock were outstanding, including options to purchase 1,190,611 shares of
common stock issued under our 1995 Stock Option/Stock Issuance Plan, and 677,236
shares of common stock issued to former employees of AAT upon assumption of
AAT's 1999 Equity Incentive Plan in connection with our acquisition of AAT.
Options to purchase a total of 148,238 shares of common stock remain available
for grant under our 1995 Stock Option/Stock Issuance Plan.
REGISTRATION RIGHTS
Under the terms of an agreement with some of our stockholders, after the
closing of this offering the holders of 15,921,412 shares of common stock will
be entitled to require the registration of their shares under the Securities Act
of 1933. The holders of any 6,308,565 of these shares may exercise "demand
rights" entitling them to require that we register their shares under the
Securities Act of 1933, subject to limitations described in the relevant
agreement. We are not required to effect more than two registrations for such
holders pursuant to these demand registration rights. These demand rights
commence on the earlier of December 31, 2001 or eleven months after the
effective date of the first registration statement for a public offering of our
securities, and expire five years from such effective date. In addition,
Bristol-Myers Squibb Company and Rhone-Poulenc Rorer International Holdings Inc.
each maintain an individual right to demand registration of their shares under
the Securities Act of 1933, subject to limitations. Their demand rights commence
eleven months after the effective date of the first registration statement for a
public offering of our securities, and terminate five years from such effective
date. Further, after the closing of this offering, holders of all 15,921,412 of
these registrable securities will be entitled to piggyback registration rights
with respect to the registration of their shares of common stock. If we propose
to register any shares of common stock either for our account or for the account
of other security holders, the holders of shares having piggyback rights are
entitled to receive notice of the registration, subject to some limitations.
Further, at any time after we become eligible to file a registration statement
on Form S-3, the holders of any 3,184,283 of the registrable securities may
require us to file registration statements under the Securities Act of 1933 on
Form S-3 with respect
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<PAGE> 67
to such shares. These registration rights are subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares of common stock held by security holders with registration
rights to be included in such registration. We are generally required to bear
all of the expenses of all these registrations, including the reasonable fees of
a single counsel acting on behalf of all selling stockholders, except
underwriting discounts and selling commissions. Registration of any shares of
common stock held by security holders with registration rights would result in
those shares becoming freely tradable without restriction under the Securities
Act of 1933 immediately upon effectiveness of registration.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS
General. Provisions of Delaware law, as well as our certificate of
incorporation and bylaws, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring,
control of us. Such provisions could limit the price that some investors might
be willing to pay in the future for our common stock. These provisions of
Delaware law and our certificate of incorporation and bylaws may also have the
effect of discouraging or preventing certain types of transactions involving an
actual or threatened change of control of us, including unsolicited takeover
attempts, even though such a transaction may offer our stockholders the
opportunity to sell their stock at a price above the prevailing market price.
Delaware Takeover Statute. We are subject to the "business combination"
provisions of Section 203 of the Delaware General Corporation Law. Subject to
certain exceptions, Section 203 prohibits a publicly-held 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 transaction is approved by the board of directors prior to the date
the interested stockholder obtained interested stockholder status;
- upon consummation of the transaction that resulted in the stockholders
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
- on or subsequent to the date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, 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. This statute could prohibit or
delay the accomplishment of mergers or other takeover or change in control
attempts with respect to us and, accordingly, may discourage attempts to acquire
us.
Charter and Bylaw Provisions. In addition, certain provisions of our
certificate of incorporation and bylaws summarized in the following paragraphs
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
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Classified Board of Directors; Removal; Filling Vacancies and
Amendment. The certificate of incorporation and bylaws provide that upon the
closing of this offering the board will be divided into three classes of
directors serving staggered, three-year terms. The classification of the board
has the effect of requiring at least two annual stockholder meetings, instead of
one, to replace a majority of members of the board. Subject to the rights of the
holders of any outstanding series of preferred stock, the certificate of
incorporation authorizes only the board to fill vacancies, including newly
created directorships. Accordingly, this provision could prevent a stockholder
from obtaining majority representation on the board by enlarging the board of
directors and filling the new directorships with its own nominees. The
certificate of incorporation also provides that directors may be removed by
stockholders only for cause and only by the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock.
Stockholder Action; Special Meeting of Stockholders. The certificate of
incorporation provides that stockholders may not take action by written consent,
but may only take action at duly called annual or special meetings of
stockholders. The certificate of incorporation further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors or a majority of the board of directors. This limitation on the right
of stockholders to call a special meeting could make it more difficult for
stockholders to initiate actions that are opposed by the board of directors.
These actions could include the removal of an incumbent director or the election
of a stockholder nominee as a director. They could also include the
implementation of a rule requiring stockholder ratification of specific
defensive strategies that have been adopted by the board of directors with
respect to unsolicited takeover bids. In addition, the limited ability of the
stockholders to call a special meeting of stockholders may make it more
difficult to change the existing board and management.
Advance Notice Requirements for Stockholder Proposals and Director
Nomination. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 120 days
prior to the date of our annual meeting. The bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions, employee benefit plans and "poison pill" rights
plans. The existence of authorized but unissued shares of common stock and
preferred stock could render more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or otherwise.
Supermajority Vote to Amend Charter and Bylaws. The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
Following the completion of this offering, our present directors, and executive
officers and principal stockholders will beneficially own approximately
of our common stock. This gives them veto power with respect to
any stockholder action or approval requiring either a two-thirds vote or a
simple majority.
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NASDAQ NATIONAL MARKET
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "DPII."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock after this offering could decline as
a result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Such sales also could
make it more difficult for us to sell equity securities in the future at a time
and price that we deem appropriate. Based on the number of shares outstanding at
May 5, 2000, after this offering, we will have shares of common
stock outstanding. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless these shares are purchased by "affiliates" as that term is defined
in Rule 144 under the Securities Act. This leaves shares eligible
for sale in the public market as follows:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
NUMBER
DATE OF SHARES
---- ---------
<S> <C>
After the date of this prospectus...........................
At various times after 90 days from the date of this
prospectus under Rule 701.................................
At various times after 180 days from the date of this
prospectus, subject, in some cases, to volume limitations
under Rule 144............................................
</TABLE>
The holders of % of our common stock, including all of our directors
and officers, together with the holders of options to purchase
shares of common stock and the holders of warrants to purchase
shares of common stock, have entered into lock-up agreements under which they
have agreed with the underwriters not to offer, sell, contract to sell, hedge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, without the prior written consent of
Chase Securities Inc.
In general, under Rule 144 of the Securities Act of 1933, a person or
persons whose shares are required to be aggregated, including an affiliate,
whose shares have been owned for at least one year is entitled to sell, within
any three-month period after the date of this prospectus, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of common
stock -- approximately shares immediately after this
offering -- or the average weekly trading volume in our common stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions. In addition, a person who is not deemed to have
been an affiliate of ours at any time during the 90 days preceding a sale and
whose shares have been beneficially owned by nonaffiliates for at least two
years would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above. To the extent that shares were acquired from
one of our affiliates, such person's holding period for the purpose of effecting
a sale under Rule 144 commences on the date of transfer from the affiliate.
Following 90 days after the date of this prospectus, shares issued upon
exercise of options that we granted prior to the date of this offering will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance upon
Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule 144.
As of May 5, 2000, options to purchase a total of shares of
common stock were outstanding, of which were currently
exercisable, and of which are subject to repurchase by us. Of these
shares, shares may be eligible for sale in the
public market at various times after 90 days from the date of this prospectus.
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<PAGE> 71
Upon the closing of this offering, we intend to file a registration
statement to register for resale the shares of common stock
reserved for issuance under our stock option plans. We expect the registration
statement to become effective immediately upon filing. Shares issued upon the
exercise of stock options granted under our stock option plans will be eligible
for resale in the public market from time to time subject to vesting and, in the
case of certain options, the expiration of the lock-up agreements referred to
above.
See "Management -- Benefit Plans," "Principal Stockholders," and
"Underwriting."
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UNDERWRITING
Chase Securities Inc., Lehman Brothers Inc. and UBS Warburg LLC are the
representatives of the underwriters. Subject to the terms and conditions of the
underwriting agreement, the underwriters named below, through their
representatives, have severally agreed to purchase from us the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Chase Securities Inc. ...........................
Lehman Brothers Inc. ............................
UBS Warburg LLC..................................
---------
Total............................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt of certain
certificates, opinions and letters from us, our counsel and the independent
auditors. The underwriters are committed to purchase all of the shares of common
stock offered by us in this prospectus if they purchase any shares.
The following table shows the per share and total underwriting discounts
and commissions we will pay to the underwriters. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.
UNDERWRITING DISCOUNTS AND COMMISSIONS
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
EXERCISE EXERCISE
-------------- --------------
<S> <C> <C>
Per Share................ $ $
Total.................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $ million.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at that price less a concession not in
excess of $ per share. The underwriters may allow and such dealers may
re-allow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the underwriters. The representatives have
advised us that the underwriters do not intend to confirm discretionary sales in
excess of % of the shares of common stock offered in this prospectus.
We have granted to the underwriters a 30-day option to purchase up to
additional shares of common stock at the initial public offering
price, less the underwriting discount set forth on the cover page of this
prospectus. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of total shares the underwriter purchased in the above table. We will
be obligated, pursuant to this option, to sell shares to the underwriters to the
extent the option is exercised. The underwriters may exercise this option only
to cover over-allotments made in connection with the sale of common stock
offered by us.
68
<PAGE> 73
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make with respect to these liabilities.
Substantially all of our securityholders and all of our executive officers
and directors have agreed or will agree prior to completion of this offering,
that they will not, without the prior written consent of Chase Securities Inc.,
offer, sell or otherwise dispose of any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock owned by them for a period of 180 days
following the date of this prospectus. We have agreed that we will not, without
the prior written consent of Chase Securities Inc., offer, sell or otherwise
dispose of any shares of common stock, options or warrants to acquire shares of
common stock or securities exchangeable for or convertible into shares of common
stock for a period of 180 days following the date of this prospectus, except
that we may issue shares upon the exercise of options and warrants granted prior
to the date hereof and in connection with our employee stock purchase plan of
2000. We may also grant additional options or other awards under our 2000 equity
incentive plan. Without the prior written consent of Chase Securities Inc., any
additional options granted shall not be exercisable during this 180-day period.
The representatives of the underwriters participating in this offering may
over-allot or effect transactions which stabilize, maintain or otherwise affect
the market price of the common stock at levels above those which might otherwise
prevail in the open market, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid or effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the common stock. A syndicate
covering transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created in
connection with the offering. A penalty bid means an arrangement that permits
the underwriters to reclaim a selling concession from a syndicate member in
connection with the offering when common stock sold by the syndicate member are
purchased in syndicate covering transactions. Such transactions may be effected
on the Nasdaq National Market, in the over-the-counter market, or otherwise.
Such stabilizing, if commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the shares of common stock will be
determined by negotiations among us and the representatives. Among the factors
to be considered in determining the initial public offering price will be
prevailing market and economic conditions, our revenue and earnings, market
valuations of other companies engaged in activities similar to our business
operations, our management and other factors deemed relevant.
In addition, at our request, the underwriters have reserved up to
shares of common stock for sale at the initial public offering
price to our directors, business associates and related persons. The number of
shares available for sale to the general public will be reduced if such persons
purchase the reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.
In connection with this offering, certain underwriters and selling group
members, if any, who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our shares of common stock
on the Nasdaq National Market in accordance with Rule 103 of Regulation M under
the Securities Exchange Act of 1934, as amended. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of
69
<PAGE> 74
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Brobeck, Phleger & Harrison LLP, San Diego, California. Certain
attorneys of Brobeck, Phleger & Harrison maintain beneficial ownership of 2,875
shares of our common stock. Cooley Godward LLP, San Diego, California, is acting
as counsel for the underwriters in connection with various legal matters
relating to the shares of common stock offered by this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1999, and for each of the three
years in the period ended December 31, 1999 and the financial statements of Axys
Advanced Technologies, Inc. as of December 31, 1998 and 1999 and for the years
then ended as set forth in their reports. We have included our financial
statements (including those of Axys Advanced Technologies, Inc.) in this
prospectus in reliance on their reports, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
shares of common stock to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information with respect to us and the shares of common stock to be sold in this
offering, reference is made to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. Whenever a reference is made
in this prospectus to any contract or other document of ours, the reference may
not be complete, and you should refer to the exhibits that are apart of the
registration statement for a copy of the contract or document.
You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.
This prospectus includes statistical data that were obtained from industry
publications. These industry publications generally indicate that the authors of
these publications have obtained information from sources believed to be
reliable, but do not guarantee the accuracy and completeness of their
information. While we believe these industry publications to be reliable, we
have not independently verified their data.
70
<PAGE> 75
DISCOVERY PARTNERS INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISCOVERY PARTNERS INTERNATIONAL, INC.
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 (Deficit)
for the years ended December 31, 1997, 1998 and 1999 and
for 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
AXYS ADVANCED TECHNOLOGIES, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-21
Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (Unaudited)...................................... F-22
Statements of Operations for the years ended December 31,
1998 and 1999 and for the three months ended March 31,
1999 and 2000 (Unaudited)................................. F-23
Statements of Stockholder's/Division Equity for the years
ended December 31, 1998 and 1999 and for the three months
ended March 31, 2000 (Unaudited).......................... F-24
Statements of Cash Flows for the years ended December 31,
1998 and 1999 and for the three months ended March 31,
2000 (Unaudited).......................................... F-25
Notes to Financial Statements............................... F-26
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Balance Sheets as of
March 31, 2000............................................ F-36
Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1999........... F-37
Unaudited Pro Forma Combined Condensed Statement of
Operations for the three months ended March 31, 2000...... F-38
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements................................................ F-39
</TABLE>
F-1
<PAGE> 76
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
The Board of Directors
Discovery Partners International, Inc.
We have audited the accompanying consolidated balance sheets of Discovery
Partners International, Inc. as of December 31, 1998 and 1999 and the related
consolidated statements of operations, stockholders' equity (deficit), 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 audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the consolidated financial position of Discovery
Partners International, Inc. at December 31, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
March 10, 2000, except for Note 11,
as to which the date is , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 11 to the financial
statements.
/s/ ERNST & YOUNG LLP
May 8, 2000
F-2
<PAGE> 77
DISCOVERY PARTNERS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AS OF
---------------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 10,714,889 $ 2,884,639 $ 983,819
Accounts receivable.................................. 1,642,065 2,785,618 3,081,907
Inventories.......................................... 1,107,041 1,517,297 2,462,869
Prepaid and other current assets..................... 327,537 201,284 365,081
------------ ------------ ------------
Total current assets............................... 13,791,532 7,388,838 6,893,676
Property and equipment, net............................ 1,398,517 4,655,227 5,296,150
Restricted cash and cash equivalents and other
assets............................................... 193,314 2,264,200 2,430,034
Patent and license rights, net......................... 1,212,497 1,137,625 1,079,307
Goodwill, net.......................................... -- 6,205,830 6,050,684
------------ ------------ ------------
Total assets....................................... $ 16,595,860 $ 21,651,720 $ 21,749,851
============ ============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses................ $ 2,413,714 $ 2,348,226 $ 2,030,526
Deferred business acquisition payment................ -- 1,721,775 --
Current portion of obligations under capital leases
and equipment notes payable........................ 205,980 226,575 201,815
Line of credit....................................... -- 958,346 762,753
Deferred revenue..................................... 2,196,200 1,935,249 1,849,139
Notes payable to stockholders........................ -- 3,861,920 6,000,000
------------ ------------ ------------
Total current liabilities.......................... 4,815,894 11,052,091 10,844,233
Obligations under capital leases and equipment notes
payable, less current portion........................ 95,685 282,317 935,393
Deferred rent.......................................... 75,824 51,906 55,391
Long-term debt from stockholder........................ -- 1,627,860 1,569,100
Commitments
Redeemable convertible preferred stock, $.001 par
value, 7,333,333 shares authorized, 6,562,278 issued
and outstanding at December 31, 1998 and 1999 and
March 31, 2000; liquidation preference and redemption
value -- $28,048,404 at December 31, 1999; no shares
authorized, issued and outstanding pro forma
(unaudited).......................................... 27,906,717 27,906,717 27,906,717 $ --
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 1,000,000 shares
authorized, no shares issued and outstanding pro
forma (unaudited).................................. -- -- -- --
Common stock, $.001 par value, 10,000,000 shares
authorized, 1,420,973, 1,611,763, and 1,789,068
issued and outstanding at December 31 1998 and 1999
and March 31, 2000, respectively; 100,000,000
shares authorized, 8,410,848 shares issued and
outstanding pro forma (unaudited).................. 1,421 1,612 1,789 8,411
Additional paid-in capital........................... 234,384 1,399,376 4,016,372 31,916,467
Deferred compensation................................ -- (642,282) (1,824,265) (1,824,265)
Note receivable from stockholder..................... (172,000) (240,000) (240,000) (240,000)
Accumulated other comprehensive loss................. -- (55,448) (152,069) (152,069)
Accumulated deficit.................................. (16,362,065) (19,732,429) (21,362,810) (21,362,810)
------------ ------------ ------------ ------------
Total stockholders' equity (deficit)............... (16,298,260) (19,269,171) (19,560,983) $ 8,345,734
------------ ------------ ------------ ------------
Total liabilities, redeemable preferred stock and
stockholders' equity (deficit)................... $ 16,595,860 $ 21,651,720 $ 21,749,851
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 78
DISCOVERY PARTNERS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 3,149,479 $ 6,213,736 $13,075,835 $2,896,165 $ 5,173,043
Cost of revenues................. 1,311,681 2,785,514 8,234,858 1,762,505 3,052,994
----------- ----------- ----------- ---------- -----------
Gross margin................ 1,837,798 3,428,222 4,840,977 1,133,660 2,120,049
Cost and expenses:
Research and development....... 4,143,193 5,057,851 3,537,651 969,303 618,981
Selling, general and
administrative.............. 2,527,902 4,984,645 4,439,021 1,092,984 1,519,285
Amortization of deferred
compensation................ -- -- 311,388 70,158 263,367
Amortization of goodwill....... -- -- -- -- 155,146
----------- ----------- ----------- ---------- -----------
Total operating expenses.... 6,671,095 10,042,496 8,288,060 2,132,445 2,556,779
----------- ----------- ----------- ---------- -----------
Loss from operations............. (4,833,297) (6,614,274) (3,447,083) (998,785) (436,730)
Interest income.................. 106,617 386,058 270,645 97,888 45,612
Interest expense................. (92,678) (112,698) (60,003) (21,669) (1,368,036)
Foreign currency translation
income (expense)............... (2,661) 63,401 (133,923) (49,900) 128,773
----------- ----------- ----------- ---------- -----------
Net loss......................... $(4,822,019) $(6,277,513) $(3,370,364) $ (972,466) $(1,630,381)
=========== =========== =========== ========== ===========
Historical net loss per share,
basic and diluted.............. $ (8.85) $ (8.20) $ (3.00) $ (0.96) $ (1.23)
=========== =========== =========== ========== ===========
Shares used in calculating
historical net loss per share,
basic and diluted.............. 544,876 765,263 1,125,040 1,014,418 1,323,860
=========== =========== =========== ========== ===========
Pro forma net loss per share,
basic and diluted.............. $ (0.44) $ (0.21)
=========== ===========
Shares used in calculating pro
forma net loss per share, basic
and diluted.................... 7,728,820 7,938,689
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 79
DISCOVERY PARTNERS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE OTHER
------------------ PAID-IN DEFERRED FROM COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER LOSS DEFICIT
--------- ------ ---------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 895,800 $ 896 $ 32,994 $ -- $ -- $ -- $ (5,262,533)
Common stock issued for
compensation................... 16,800 17 3,523 -- -- -- --
Exercise of options to purchase
common stock................... 44,131 44 11,850 -- -- -- --
Net loss......................... -- -- -- -- -- -- (4,822,019)
--------- ------ ---------- ----------- --------- --------- ------------
Balance at December 31, 1997....... 956,731 957 48,367 -- -- -- (10,084,552)
Exercise of options to purchase
common stock, net of
repurchases.................... 34,242 34 14,447 -- -- -- --
Issuance of common stock in
exchange for a promissory
note........................... 430,000 430 171,570 -- (172,000) -- --
Net loss......................... -- -- -- -- -- -- (6,277,513)
--------- ------ ---------- ----------- --------- --------- ------------
Balance at December 31, 1998....... 1,420,973 1,421 234,384 -- (172,000) -- (16,362,065)
Exercise of options to purchase
common stock, net of
repurchases.................... 20,790 21 5,412 -- -- -- --
Issuance of common stock in
exchange for a promissory
note........................... 170,000 170 67,830 -- (68,000) -- --
Issuance of warrants to purchase
preferred stock................ -- -- 138,080 -- -- -- --
Deferred compensation related to
stock options and restricted
stock.......................... -- -- 953,670 (953,670) -- -- --
Amortization of deferred
compensation................... -- -- -- 311,388 -- -- --
Comprehensive loss:
Foreign currency translation
adjustment................... -- -- -- -- -- (55,448) --
Net loss....................... -- -- -- -- -- -- (3,370,364)
Comprehensive loss............... -- -- -- -- -- -- --
--------- ------ ---------- ----------- --------- --------- ------------
Balance at December 31, 1999....... 1,611,763 1,612 1,399,376 (642,282) (240,000) (55,448) (19,732,429)
Exercise of options to purchase
common stock (unaudited)....... 177,305 177 65,879 -- -- -- --
Issuance of warrants to purchase
preferred stock (unaudited).... -- -- 1,105,767 -- -- -- --
Deferred compensation related to
stock options and restricted
stock (unaudited).............. -- -- 1,445,350 (1,445,350) -- -- --
Amortization of deferred
compensation (unaudited)....... -- -- -- 263,367 -- -- --
Comprehensive loss:
Foreign currency translation
adjustment (unaudited)....... -- -- -- -- -- (96,621) --
Net loss (unaudited)........... -- -- -- -- -- -- (1,630,381)
Comprehensive loss (unaudited)... -- -- -- -- -- -- --
--------- ------ ---------- ----------- --------- --------- ------------
Balance at March 31, 2000
(unaudited)...................... 1,789,068 $1,789 $4,016,372 $(1,824,265) $(240,000) $(152,069) $(21,362,810)
========= ====== ========== =========== ========= ========= ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Balance at December 31, 1996....... $ (5,228,643)
Common stock issued for
compensation................... 3,540
Exercise of options to purchase
common stock................... 11,894
Net loss......................... (4,822,019)
------------
Balance at December 31, 1997....... (10,035,228)
Exercise of options to purchase
common stock, net of
repurchases.................... 14,481
Issuance of common stock in
exchange for a promissory
note........................... --
Net loss......................... (6,277,513)
------------
Balance at December 31, 1998....... (16,298,260)
Exercise of options to purchase
common stock, net of
repurchases.................... 5,433
Issuance of common stock in
exchange for a promissory
note........................... --
Issuance of warrants to purchase
preferred stock................ 138,080
Deferred compensation related to
stock options and restricted
stock.......................... --
Amortization of deferred
compensation................... 311,388
Comprehensive loss:
Foreign currency translation
adjustment................... (55,448)
Net loss....................... (3,370,364)
------------
Comprehensive loss............... (3,425,812)
------------
Balance at December 31, 1999....... (19,269,171)
Exercise of options to purchase
common stock (unaudited)....... 66,056
Issuance of warrants to purchase
preferred stock (unaudited).... 1,105,767
Deferred compensation related to
stock options and restricted
stock (unaudited).............. --
Amortization of deferred
compensation (unaudited)....... 263,367
Comprehensive loss:
Foreign currency translation
adjustment (unaudited)....... (96,621)
Net loss (unaudited)........... (1,630,381)
------------
Comprehensive loss (unaudited)... (1,727,002)
------------
Balance at March 31, 2000
(unaudited)...................... $(19,560,983)
============
</TABLE>
See accompanying notes.
F-5
<PAGE> 80
DISCOVERY PARTNERS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $(4,822,019) $(6,277,513) $(3,370,364) $ (972,466) $(1,630,381)
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued for compensation.............. 3,540 -- -- -- --
Depreciation and amortization..................... 242,550 561,049 360,322 135,676 608,112
Amortization of deferred compensation............. -- -- 311,388 70,158 263,367
Noncash interest expense for warrants issued...... -- -- -- -- 1,243,847
Deferred revenue.................................. 324,800 1,871,400 (774,987) (426,089) (86,109)
Deferred rent..................................... (7,619) 6,069 (23,918) (10,219) 3,485
Change in operating assets and liabilities:
Accounts receivable............................. (1,150,870) (334,487) (444,341) 55,154 (296,289)
Inventories..................................... (475,735) (423,365) (357,037) 193,695 (945,573)
Other current assets............................ (179,359) (65,907) 130,727 (178,934) (163,797)
Accounts payable and accrued expenses........... 812,870 1,395,725 (567,171) (1,094,830) (317,700)
Restricted cash................................. -- -- (1,000,000) -- 45,200
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities............... (5,251,842) (3,267,029) (5,735,381) (2,227,855) (1,275,838)
INVESTING ACTIVITIES
Purchases of property and equipment................. (525,084) (848,202) (1,112,191) (56,779) (1,038,283)
Deposits and other assets........................... (16,599) (7,331) 181,313 (1,802) (211,034)
Purchase of patents and license rights.............. -- (1,212,497) -- 37,501 --
Acquisition of DTL, net of cash acquired of
$559,946.......................................... -- -- (4,963,444) -- --
Additional cash consideration for acquisition of
DTL............................................... -- -- -- -- (1,721,775)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities............... (541,683) (2,068,030) (5,894,322) (21,080) (2,971,092)
FINANCING ACTIVITIES
Proceeds from issuance of equipment notes payable... 85,008 -- -- -- 747,150
Principal payments on capital leases and equipment
notes payable..................................... (185,800) (262,165) (205,980) (64,693) (118,835)
Principal payments on line of credit................ -- -- -- -- (195,593)
Issuance of redeemable preferred stock, net of
issuance costs.................................... 1,937,139 13,568,346 -- -- --
Issuance of common stock............................ 11,894 14,481 5,433 2,251 66,056
Proceeds from convertible notes payable............. -- 2,448,395 4,000,000 -- 2,000,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities........... 1,848,241 15,769,057 3,799,453 (62,442) 2,498,778
Effect of exchange rate changes..................... -- -- -- -- (152,668)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (3,945,284) 10,433,998 (7,830,250) (2,311,377) (1,900,820)
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at beginning of period.... 4,226,175 280,891 10,714,889 10,714,889 2,884,639
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 280,891 $10,714,889 $ 2,884,639 $8,403,512 $ 983,819
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid....................................... $ 92,678 $ 112,697 $ 60,004 $ 21,668 $ 124,189
=========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of convertible notes payable to preferred
stock............................................. $ -- $ 2,448,395 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Issuance of common stock for promissory note........ $ -- $ 172,000 $ 68,000 $ -- $ --
=========== =========== =========== =========== ===========
Issuance of warrant to purchase preferred stock..... $ -- $ -- $ 138,080 $ -- $ 1,105,767
=========== =========== =========== =========== ===========
Deferred acquisition payment for DTL................ $ -- $ -- $ 1,721,775 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 81
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION AND BUSINESS
Discovery Partners International, Inc. (the "Company") was incorporated in
California on March 22, 1995, under the name IRORI. The Company develops and
offers libraries of drug-like compounds, proprietary instruments, consumables
and computational tools to generate compound libraries, test, screen and
optimize potential drugs. In 1998, the Company changed its name to Discovery
Partners International, Inc.
CONSOLIDATION
The consolidated financial statements include all the accounts of the
Company and its wholly owned subsidiaries, IRORI Europe, Ltd. and Discovery
Technologies, Ltd. All intercompany accounts and transactions have been
eliminated. The Company has determined that it operates in only one segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 2000 and for the three months
ended March 31, 1999 and 2000 is unaudited and includes all adjustments,
consisting only of normal recurring adjustments, that the Company's management
considers necessary for a fair presentation of the Company's operating results
and cash flows for such periods. Results for the three month period ended March
31, 2000 are not necessary indicative of results to be expected for the full
fiscal year 2000 or any future period.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform to the 1999
presentation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining
maturity of less than three months when purchased to be cash equivalents. At
December 31, 1998 and 1999, the cost of cash equivalents was the same as the
market value. Accordingly, there were no unrealized gains and losses. The
Company evaluates the financial strength of institutions at which significant
investments are made and believes the related credit risk is limited to an
acceptable level.
F-7
<PAGE> 82
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 undiscounted future operating cash flows. If impairment is
indicated, the Company measures the future cash flows associated with the use of
the asset and records the asset at fair value. 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 March 31, 2000.
INVENTORIES
Inventories are recorded at the lower of weighted average cost
(approximates first-in first-out) or market. Inventories consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials.................................. $ 958,811 $ 588,048 $ 779,273
Work-in process................................ -- 601,432 1,070,914
Finished goods................................. 148,230 327,817 612,682
---------- ---------- ----------
$1,107,041 $1,517,297 $2,462,869
========== ========== ==========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Furniture and equipment...................... $1,974,374 $ 4,821,335 $ 5,369,795
Software..................................... -- 362,108 366,038
Leasehold improvements....................... 375,429 633,387 1,052,754
---------- ----------- -----------
2,349,803 5,816,830 6,788,587
Less accumulated depreciation and
amortization............................... (951,286) (1,161,603) (1,492,437)
---------- ----------- -----------
$1,398,517 $ 4,655,227 $ 5,296,150
========== =========== ===========
</TABLE>
Property and equipment, including equipment under capital leases and
equipment notes payable, are stated at cost and depreciated over the estimated
useful lives of the assets (three to seven years) or the term of the related
lease, using the straight-line method. Amortization of assets acquired under
capital leases is included in depreciation expense.
F-8
<PAGE> 83
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PATENT AND LICENSE RIGHTS
The Company has purchased patents and license rights for the labeling of
chemical libraries and related to products for sale and in development. The
purchased patents and license rights are amortized ratably over a period of ten
years.
REVENUE RECOGNITION
Product sales are recorded as products are shipped. Development contract
revenues are recognized on a percentage of completion basis. Advances received
under these development contracts are recorded as deferred revenue and
recognized as costs are incurred over the term of the contract.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with research and development is charged to
operations as incurred.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related Interpretations ("APB
25") in accounting for its employee stock options because the alternative fair
value accounting provided for under Financial Accounting Standards Board
("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, when the exercise price of the
Company's employee stock options equals the fair value of the underlying stock
on the date of grant, no compensation expense is recognized.
Deferred compensation for options granted to non-employees has been
determined in accordance with SFAS No. 123 and EITF 96-18 as the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred charges for options granted to
non-employees are periodically remeasured as the underlying options vest.
COMPREHENSIVE LOSS
SFAS No. 130, Reporting Comprehensive Income, requires the Company to
report in the consolidated financial statements, in addition to net income,
comprehensive income (loss) and its components including foreign currency items
and unrealized gains and losses on certain investments in debt and equity
securities. For the year ended December 31, 1999 and the three months ended
March 31, 2000, the Company has disclosed comprehensive loss as a component of
shareholders' equity. Comprehensive loss was the same as net loss for the years
ended December 31, 1997 and 1998.
F-9
<PAGE> 84
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in conformity
with the SFAS No. 128, Earnings per Share, and SAB 98, for all periods
presented. Under the provisions of SAB 98, common stock and redeemable
convertible preferred stock that has been issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of 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 for the
three months 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 Company has excluded all convertible preferred stock, outstanding stock
options and warrants, and shares subject to repurchase from the calculation of
diluted net loss per common share because all such securities are antidilutive
for all applicable periods presented. The total number of shares excluded from
the calculations of diluted net loss per share, prior to application of the
treasury stock method for options and warrants, were 4,636,150, 7,102,923 and
6,987,176 for the years ended December 31, 1997, 1998 and 1999, respectively,
and 7,159,254 and 6,998,140 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. The
Company believes the adoption of SFAS No. 133 will not have an effect on the
financial statements because the Company does not engage in derivative or
hedging activities.
In December 1999, the SEC released Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
application of SAB No. 101 is not expected to have a material impact on the
Company's financial statements.
F-10
<PAGE> 85
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial statements of IRORI Europe, Ltd. are measured using the U.S.
dollar as the functional currency. The financial statements of Discovery
Technologies, Ltd. are measured using the local currency as the functional
currency. Assets and liabilities of the Company are translated at the rates of
exchange at the balance sheet date. Income and expense items are translated at
the average rate of exchange during the reporting period. The resulting
translation adjustments for IRORI Europe, Ltd. are included in foreign currency
translation expense (income) in the consolidated statement of operations. The
resulting translation adjustments for Discovery Technologies, Ltd. are
unrealized and included as a separate component of other comprehensive income
(loss).
3. ACQUISITION OF DISCOVERY TECHNOLOGIES, LTD.
On December 31, 1999, the Company acquired Discovery Technologies, Ltd.
("DTL"), located near Basel, Switzerland. The acquisition of DTL was accounted
for as a purchase in accordance with the provisions of Accounting Principles
Board Opinion ("APB") No. 16. The Company's consolidated financial statements
include the financial position of DTL as of December 31, 1999.
A summary of the DTL acquisition costs and allocation to the assets
acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition costs:
Cash paid at acquisition.................................. $ 3,438,025
Advances to DTL prior to acquisition...................... 1,878,300
Deferred acquisition payment.............................. 1,721,775
Acquisition related expenses.............................. 151,617
-----------
$ 7,189,717
===========
Allocated to assets and liabilities as follows:
Tangible assets acquired.................................. $ 4,999,019
Tangible liabilities assumed.............................. (4,015,132)
Goodwill.................................................. 6,205,830
-----------
$ 7,189,717
===========
</TABLE>
The goodwill is amortized on a straight-line basis over a period of ten
years from the date of acquisition. In addition, the agreement provided for
additional cash consideration to be issued based upon the 1999 and 2000
operating results, of which $1,721,775 was earned based on the 1999 operating
results of DTL. The Company may be required to pay up to an additional $950,000
as consideration based on DTL's operating results for 2000. The value of
additional cash consideration will be accounted for as an increase to goodwill.
F-11
<PAGE> 86
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
3. ACQUISITION OF DISCOVERY TECHNOLOGIES, LTD. (CONTINUED)
Assuming that the acquisition of DTL had occurred on the first day of the
Company's fiscal year ended December 31, 1998, pro forma condensed consolidated
financial information would be as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $ 8,293,174 $18,932,146
Net loss.......................................... (8,215,215) (3,499,009)
Net loss per share, basic and diluted............. $ (10.74) $ (3.11)
</TABLE>
This pro forma information is not necessarily indicative of the actual
results that would have been achieved had DTL been acquired the first day of the
Company's fiscal year ended December 31, 1998, nor is it necessarily indicative
of future results.
4. DEBT
EQUIPMENT NOTES PAYABLE
At December 31, 1999, obligations under equipment notes totaled $55,698
payable in monthly installments through the year 2000 with a weighted-average
interest rate of 14.58% secured by the assets of the Company. In March 2000, the
Company signed two equipment notes payable totaling $747,150 payable in monthly
installments through the year 2003 with a weighted-average interest rate of
13.82% secured by assets of the Company.
NOTES PAYABLE TO SHAREHOLDERS
On December 10, 1999, the Company borrowed $4.0 million from certain of its
principal investors. The notes accrue interest at 8% per annum and are due and
payable on the earlier of the closing of a preferred stock financing round or
February 10, 2000. Subsequent to December 31, 1999, the noteholders informally
extended the maturity of the notes until the closing of the redeemable
convertible Series E preferred stock sale. Deferred interest expense of $138,080
related to the valuation of warrants is offset against the balance of notes
payable at December 31, 1999 (see Note 7 and 11).
On March 9, 2000, the Company borrowed $2.0 million from one of its
principal investors. The promissory note accrues interest at 8% per annum and is
due and payable upon the earlier of the closing of a preferred stock financing
round or June 9, 2000. In connection with the note, the Company issued warrants
to purchase a variable number of shares of redeemable convertible preferred
stock at a purchase price of $5.00 per share (see Note 7 and 11).
LINE OF CREDIT
The Company's wholly owned subsidiary, DTL, has $1.0 million outstanding
under a line of credit with a financial institution. Under the terms of the line
of credit, the Company has pledged $1.3 million of cash and cash equivalents as
collateral. The amount is included in restricted cash and cash equivalents as of
December 31, 1999. The line of credit accrues interest at 4.75% per
F-12
<PAGE> 87
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
4. DEBT (CONTINUED)
annum plus 0.25% per quarter based on the average borrowed amount and is
available until December 31, 2000.
LONG-TERM DEBT
The Company's wholly owned subsidiary, DTL, has approximately $1.6 million
in long-term debt as of December 31, 1999. The debt accrues interest at 5% per
annum and is due and payable on June 30, 2001 to an investor.
5. COMMITMENTS
LEASES
The Company leases a facility under an operating lease agreement that
expires on August 31, 2000. The Company has the option to extend the lease to
January 21, 2006. The Company leases a second facility under an operating lease
agreement that expires on August 31, 2006. Rent expense was $396,809, $829,343
and $648,788 for the years ended December 31, 1997, 1998 and 1999, respectively,
and $220,331 and $206,176 for the three months ended March 31, 1999 and 2000,
respectively. Additionally, the Company leases certain equipment under operating
leases with initial terms in excess of one year.
Annual future minimum lease obligations, including property and equipment
under capital leases, as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ---------
<S> <C> <C>
2000........................................................ $ 669,436 $ 188,422
2001........................................................ 730,994 148,435
2002........................................................ 741,106 148,435
2003........................................................ 742,672 1,773
2004........................................................ 759,284 --
Thereafter.................................................. 1,300,548 --
---------- ---------
Total minimum lease payments................................ $4,944,040 487,065
==========
Less amount representing interest........................... (33,871)
---------
Total present value of minimum payments..................... 453,194
Less current portion........................................ (170,877)
---------
Non-current portion......................................... $ 282,317
=========
</TABLE>
At December 31, 1999, cost and accumulated amortization of property and
equipment under capital leases was $624,947 and $170,183, respectively. At
December 31, 1998, cost and accumulated amortization of property and equipment
under capital leases was $211,741 and $126,726, respectively.
F-13
<PAGE> 88
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
5. COMMITMENTS (CONTINUED)
LETTER OF CREDIT
The Company signed a standby letter of credit for $700,000 required under
the terms of the Company's lease of its facilities. The Company pledged $1.0
million of cash equivalents as collateral for the letter of credit. The amount
is included in restricted cash and cash equivalents as of December 31, 1999 and
March 31, 2000. The letter of credit expires in fiscal 2004.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
A summary of redeemable convertible preferred stock issued and outstanding
at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
REDEMPTION
VALUE AND
SHARES ISSUED PREFERENCE IN
AND OUTSTANDING LIQUIDATION
--------------- -------------
<S> <C> <C>
Series A........................................ 2,000,000 $ 4,000,000
Series B........................................ 2,000,000 6,000,000
Series C........................................ 333,333 2,000,000
Series D........................................ 2,228,945 16,048,404
--------- -----------
6,562,278 $28,048,404
========= ===========
</TABLE>
In 1997, the Company issued 333,333 shares of Series C redeemable preferred
stock for net proceeds of $1.9 million. In 1998, the Company issued 2,228,945
shares of Series D redeemable preferred stock in exchange for net cash proceeds
of $13.6 million and conversion of notes payable of $2.4 million.
The redeemable convertible Series A, B, C, and D preferred stock are
convertible, at the option of the holder, into an equal number of shares of the
Company's common stock subject to certain anti-dilution adjustments. The Company
reserved 6,606,044 shares for issuance upon conversion which includes an
additional 43,766 shares issuable pursuant to the anti-dilution provisions. The
preferred stock will convert automatically upon the closing of an underwritten
public offering of the Company's common stock with proceeds to the Company of at
least $15,000,000 and at a price not less than $10.00 per share or upon the
consent of 67% of the holders of the outstanding shares. The holders of Series
A, B, C, and D preferred stock are entitled to elect five directors to the Board
of Directors, and in all other matters the holder of each share of preferred
stock is entitled to one vote for each share of common stock into which it would
convert.
Anytime after July 17, 2002, upon the request of at least 51% of the
holders of preferred stock, the Company shall redeem all of the shares by paying
in cash an amount per share equal to $2.00, $3.00, $6.00, and $7.20 plus any
declared but unpaid dividends for holders of the redeemable convertible Series
A, B, C, and D preferred stock, respectively.
Annual dividends of $.14, $.21, $.42, and $.504 per share of redeemable
convertible Series A, B, C and D preferred stock, respectively, are payable
whenever funds are legally available when, and if declared by the Board of
Directors. In the event of a liquidation of the Company, holders of redeemable
convertible Series A, B, C, and D preferred stock are entitled to a liquidation
F-14
<PAGE> 89
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
preference of $2.00, $3.00, $6.00, and $7.20, respectively, per share plus any
declared but unpaid dividends on such shares.
7. SHAREHOLDERS' EQUITY
STOCK OPTIONS
In November 1995, the Company adopted the 1995 Stock Option/Stock Issuance
Plan (the "Plan"), under which 1,950,000 shares of common stock are reserved for
issuance of stock and stock options granted by the Company. In January 2000, the
Company increased the authorized shares in the Plan by 500,000 shares of common
stock. The Plan provides for the grant of incentive and nonstatutory options.
The exercise price of incentive stock options must equal at least the fair value
on the date of grant, and the exercise price of nonstatutory stock options may
be no less than 85% of the fair value on the date of grant. The options
generally vest over a four-year period and all expire ten years after the date
of grant.
A summary of the Company's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------ THREE MONTHS ENDED
1997 1998 1999 MARCH 31, 2000
------------------- --------------------- -------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- --------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period....................... 137,500 $.21 483,720 $.31 980,075 $ .49 934,510 $ .71
Granted...................... 488,885 .33 1,087,700 .51 191,500 1.50 315,500 2.62
Exercised.................... (44,131) .27 (464,242) .40 (190,790) .38 (177,305) .37
Forfeited.................... (98,534) .30 (127,103) .34 (46,275) .75 (1,647) .36
------- ---- --------- ---- -------- ----- --------- -----
Outstanding at end of period... 483,720 $.31 980,075 $.49 934,510 $ .71 1,071,058 $1.33
======= ==== ========= ==== ======== ===== ========= =====
Exercisable.................... 94,648 $.21 204,893 $.35 418,469 $ .53 335,296 $ .63
======= ==== ========= ==== ======== ===== ========= =====
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 ranged from
$.30 to $1.50. The weighted-average remaining contractual life of those options
is approximately eight years. The weighted-average fair value of the options
granted in 1997, 1998 and 1999 is $.07, $.13 and $.39 per share, respectively.
At March 31, 2000, options for 319,874 shares were available for future
grant.
Pro forma information regarding net income or loss is required by SFAS No.
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement. The fair value of
these options was estimated at the date of grant using the minimum value
(derived from the Black-Scholes model) option pricing model with the following
weighted average assumptions in 1997, 1998 and 1999: risk-free interest rate of
6.20%, 6.0% and 6.0%, respectively; dividend yield of 0% for all years; and a
weighted-average life of five years.
F-15
<PAGE> 90
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Adjusted pro forma net loss......................... $(4,825,506) $(6,296,500) $(3,435,570)
Adjusted pro forma basic net loss per share......... $ (8.86) $ (8.23) $ (3.05)
</TABLE>
The pro forma effect on net loss for 1997, 1998 and 1999 is not likely to
be representative of the pro forma effects on reported net income or loss in
future years because these amounts reflect less than four years of vesting.
DEFERRED STOCK COMPENSATION
In connection with the grant of certain stock options and sale of
restricted stock to employees during the year ended December 31, 1999 and the
three months ended March 31, 2000, the Company has recorded deferred stock
compensation totaling approximately $1.0 million and $1.4 million, respectively,
representing the difference between the exercise or purchase price and the
deemed fair value of the Company's common stock as estimated by the Company's
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
and restricted stock. During both 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 $0.3 million.
WARRANTS
In prior years, the Company has issued warrants to purchase a total of
468,522 shares of common and preferred stock in connection with convertible
bridge notes issued to investors and obligations under capital leases. The
warrants have exercise prices ranging from $.01 to $2.00 per share. The Company
determined the relative fair value of the warrants at issuance was not material;
accordingly, no value has been assigned to the warrants.
In connection with the issuance of notes payable in December 1999, the
Company issued warrants to investors to purchase a variable number of shares of
redeemable convertible preferred stock at a purchase price of $5.00 per share.
The number of shares to be issued under the warrants is determined by a formula
based on the total number of days the notes payable are outstanding subject to a
maximum allowable of 144,656 shares. As of December 31, 1999, warrants to
purchase 27,616 shares had been earned. The estimated fair value of the warrants
of $138,080 was based on using the Black Scholes valuation model and recorded as
deferred interest expense as of December 31, 1999 to be amortized ratably over
the term of the notes payable. In March 2000, the Company issued additional
notes payable and warrants to purchase a variable number of shares of redeemable
convertible preferred stock at a purchase price of $5.00 per share. The number
of shares is to be issued under the warrants is determined by a formula based on
the total days the warrants are outstanding subject to a maximum allowable of
131,507 shares.
F-16
<PAGE> 91
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
As of March 31, 2000, an additional 193,316 shares were earned for a total
of 220,932 shares available for purchase under the warrant agreements. The
estimated fair value of the warrants of $1,243,847 was based on using the Black
Scholes valuation model and was recorded as interest expense during the three
months ended March 31, 2000 as the related notes payable were converted to
equity on April 7, 2000.
COMMON SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, common shares reserved for future issuance consist of
the following:
<TABLE>
<S> <C>
Conversion of convertible redeemable preferred stock........ 6,606,044
Warrants.................................................... 496,138
Stock options............................................... 1,068,237
---------
8,170,419
=========
</TABLE>
8. INCOME TAXES
At December 31, 1999, the Company had federal and California income tax net
operating loss carryforwards of approximately $14,627,000 and $10,934,000,
respectively. The difference between the federal and California tax operating
loss carryforwards is primarily attributable to the capitalization of research
and development expenses for California income tax purposes.
The federal and California tax loss carryforwards will begin to expire in
2010 and 2003, respectively, unless previously utilized. The Company also has
federal and California research tax credit carryforwards of approximately
$680,000 and $393,000, respectively, which will begin to expire in 2010 unless
previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use
of the Company's net operating loss and credit carryforwards may be limited if
cumulative changes in ownership of more than 50% occur during any three year
period.
Significant components of the Company's deferred tax assets are shown
below. A valuation allowance, of which $320,000 related to 1999, has been
recognized to offset the deferred tax assets, as realization of such assets is
uncertain.
F-17
<PAGE> 92
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
8. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 5,257,000 $ 5,776,000
Research and development credits........................ 829,000 935,000
Deferred revenue........................................ 739,000 583,000
Capitalized research and development expenses........... 199,000 179,000
Other, net.............................................. 178,000 49,000
----------- -----------
Total deferred tax assets................................. 7,202,000 7,522,000
Valuation allowance for deferred tax assets............... (7,202,000) (7,522,000)
----------- -----------
Net deferred tax assets................................... $ -- $ --
=========== ===========
</TABLE>
9. RETIREMENT PLAN
In 1996, the Company established a 401(k) plan covering substantially all
employees. The Company pays all administrative fees of the plan. The plan
contains provisions allowing for the Company to declare a match up to 25% of
funds contributed to the plan by employees. There were no matching contributions
declared by the Company for the years ended December 31, 1997, 1998 and 1999.
10. SIGNIFICANT CUSTOMERS AND FOREIGN OPERATIONS
Substantially all of the Company's operations and long-lived assets are
based in the United States. DTL located near Basel, Switzerland had long-lived
assets totalling $2,354,836 at December 31, 1999.
Major customers, responsible for 10% or more of revenues, include
collaborative partners and pharmaceutical and biotechnology companies. The
percentages of sales of each of these third party major customers to total
revenue derived from third parties for the years ended December 31, 1997, 1998
and 1999 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Customer A................................................. 17% 4% 22%
Customer B................................................. 16 6 --
Customer C................................................. 10 3 20
Customer D................................................. 9 23 7
</TABLE>
11. SUBSEQUENT EVENTS
ISSUANCE OF PREFERRED STOCK
On April 7, 2000, the Company issued 1,392,503 shares of Series E
redeemable convertible preferred stock at $8.00 per share in exchange for the
conversion of $6.0 million in notes payable to shareholders and $5.0 million in
cash. The Series E preferred stock has the same conversion features as the
Series A, B, C and D redeemable convertible preferred stock (Note 6). Anytime
F-18
<PAGE> 93
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
11. SUBSEQUENT EVENTS (CONTINUED)
after July 17, 2002, upon the request of at least 51% of the holders of
preferred stock, the Company shall redeem all the shares by paying in cash an
amount per share equal to $8.00 plus any declared but unpaid dividends for
holders of the redeemable convertible Series E preferred stock. Annual dividends
of $.56 per share of redeemable convertible Series E preferred stock are payable
whenever funds are legally available when, and if declared by the Board of
Directors. In the event of a liquidation of the Company, holders of redeemable
convertible Series E preferred stock are entitled to a liquidation preference of
$8.00 per share plus any declared but unpaid dividends on such shares.
ACQUISITION OF AXYS ADVANCED TECHNOLOGIES, INC.
On April 28, 2000, the Company acquired Axys Advanced Technologies, Inc.
("AAT"), a wholly owned subsidiary of Axys Pharmaceuticals, Inc. The acquisition
was accounted for as a purchase in accordance with the provisions of APB No. 16.
The Company and Axys will make certain income tax elections so that the total
cost of the acquisition will be allocated to the income tax basis of the assets
acquired. The Company is in the process of obtaining a report from an
independent valuation firm and performing other procedures necessary to complete
the purchase price allocation.
A summary of the AAT acquisition costs and preliminary allocation to the
assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition costs:
Cash paid at acquisition.................................. $ 50,000
Issuance of promissory note............................... 550,000
Issuance of common stock, warrant and stock options....... 58,445,000
Acquisition related expenses.............................. 250,000
-----------
$59,295,000
===========
Allocated to assets and liabilities as follows:
Tangible assets acquired.................................. $14,356,000
Assumed liabilities....................................... (1,200,000)
In-process research and development....................... 10,800,000
Assembled workforce....................................... 1,300,000
Below market value lease.................................. 1,200,000
Goodwill.................................................. 32,839,000
-----------
$59,295,000
===========
</TABLE>
The goodwill will be amortized on a straight-line basis over a period of
ten years from the date of acquisition. The assembled workforce and below market
lease intangible assets will be amortized on a straight-line basis over a period
of three and four years, respectively, from the date of acquisition.
F-19
<PAGE> 94
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
11. SUBSEQUENT EVENTS (CONTINUED)
Assuming that the acquisition of AAT had occurred on the first day of the
Company's fiscal year ended December 31, 1998, pro forma condensed consolidated
financial information would be as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $18,239,000 $27,050,000
Net loss.......................................... (6,976,000) (3,853,000)
Net loss per share, basic and diluted............. $ (.85) $ (.45)
</TABLE>
This pro forma information is not necessarily indicative of the actual
results that would have been achieved had AAT been acquired the first day of the
Company's fiscal year ended December 31, 1998, nor is it necessarily indicative
of future results. The above pro forma condensed financial information does not
include a $10.8 million charge for the write-off of in-process research and
development.
ACQUISITION OF STRUCTURAL PROTEOMICS, INC.
On May 5, 2000, the Company entered into agreements with Structural
Proteomics, Inc. (SPI) and its shareholders to acquire 75% of the outstanding
shares of SPI in exchange for $1,000,000 in cash and 150,000 shares of DPI
common stock. The acquisition will be accounted for as a purchase in accordance
with the provisions of APB No. 16. The pro forma results of operations as if the
acquisition of SPI had occurred on the first day of the Company's fiscal year
ended December 31, 1998 are not materially different than the reported net loss.
INITIAL PUBLIC OFFERING
In May 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 at March 31, 2000 will convert into common
stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed
conversion of the preferred stock, is set forth on the balance sheet. The board
of directors also approved (subject to stockholder approval) that prior to the
effective date of the Offering contemplated by this Prospectus, the Company will
reincorporate in Delaware. The financial statements and accompanying notes have
been retroactively restated to reflect the effect of the reincorporation in
Delaware.
F-20
<PAGE> 95
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Axys Advanced Technologies, Inc.
We have audited the accompanying balance sheets of Axys Advanced
Technologies, Inc. (a wholly-owned subsidiary of Axys Pharmaceuticals, Inc.) and
its predecessor division of Axys Pharmaceuticals, Inc. as of December 31, 1998
and 1999, and the related statements of operations, stockholder's /division
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Axys Advanced Technologies,
Inc. (a wholly-owned subsidiary of Axys Pharmaceuticals, Inc.) and its
predecessor division of Axys Pharmaceuticals, Inc. at December 31, 1998 and
1999, and the results of operations and cash flows of Axys Advanced
Technologies, Inc. (a wholly-owned subsidiary of Axys Pharmaceuticals, Inc.) and
its predecessor division of Axys Pharmaceuticals, Inc. for the years then ended,
in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Palo Alto, California
April 7, 2000
F-21
<PAGE> 96
AXYS ADVANCED TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1998(1) 1999(1)(2) 2000(2)
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ -- $ 60 $ 60
Accounts receivable, trade............................... 2,140 4,406 4,637
Inventories.............................................. 435 2,258 2,072
Deferred tax asset....................................... -- 2,487 2,681
------ ------- -------
Total current assets.................................. 2,575 9,211 9,450
Property and equipment, net................................ 2,510 2,756 3,083
Note receivable from officer............................... 33 75 76
------ ------- -------
$5,118 $12,042 $12,609
====== ======= =======
LIABILITIES AND STOCKHOLDER'S/DIVISION EQUITY
Current liabilities:
Deferred revenue......................................... 333 1,733 1,200
Income taxes payable..................................... -- 3,950 5,008
------ ------- -------
Total current liabilities............................. 333 5,683 6,208
Commitments
Stockholder's/division equity:
Common stock, $0.001 par value, 12,000,000 shares
authorized, 10,000,000 and 10,006,250 shares issued and
outstanding at December 31, 1999 and March 31, 2000,
respectively............................................. -- 10 10
Net contribution from Axys/additional paid-in capital...... 3,321 2,763 1,552
Accumulated/division income................................ 1,464 3,586 4,839
------ ------- -------
Total stockholder's/division equity................... 4,785 6,359 6,401
------ ------- -------
$5,118 $12,042 $12,609
====== ======= =======
</TABLE>
- -------------------------
(1) Through May 31, 1999, AAT's activities were included in the operations of
Axys Pharmaceuticals, Inc. AAT's financial statements for these periods have
been prepared on a carve-out basis.
(2) From June 1999, AAT operated as a separate legal entity.
See accompanying notes
F-22
<PAGE> 97
AXYS ADVANCED TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- ---------------------
1998(1) 1999(1)(2) 1999(1)(2) 2000(2)
------- ---------- ---------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Product revenues
Sales to third parties....................... $ 8,512 $12,042 $2,962 $ 4,693
Sales to Axys................................ 363 782 210 114
------- ------- ------ -------
8,875 12,824 3,172 4,807
Licensing and other revenues.................... 3,150 1,150 333 533
------- ------- ------ -------
Total revenues............................. 12,025 13,974 3,505 5,340
Operating costs and expenses:
Cost of goods sold.............................. 3,027 3,480 758 1,132
Research and development........................ 4,674 5,062 1,095 1,474
General and administrative...................... 1,049 1,847 381 617
------- ------- ------ -------
Total operating expenses................... 8,750 10,389 2,234 3,223
------- ------- ------ -------
Income before income taxes........................ 3,275 3,585 1,271 2,117
Provision for income taxes........................ -- 1,463 -- 864
------- ------- ------ -------
Net income........................................ $ 3,275 $ 2,122 $1,271 $ 1,253
======= ======= ====== =======
Basic net income per common share................. $ .21 $ .13
======= =======
Diluted net income per common share............... $ .19 $ .11
======= =======
</TABLE>
- -------------------------
(1) Through May 31, 1999, AAT's activities were included in the operations of
Axys Pharmaceuticals, Inc. AAT's financial statements for these periods have
been prepared on a carve-out basis.
(2) From June 1999, AAT operated as a separate legal entity.
See accompanying notes
F-23
<PAGE> 98
AXYS ADVANCED TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDER'S/DIVISION EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET CONTRIBUTION
COMMON STOCK FROM AXYS/ADDITIONAL ACCUMULATED/
SHARES AMOUNT PAID-IN CAPITAL DIVISION INCOME
---------- ------ -------------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998......... -- $-- $ 3,736 $(1,811)
Net and comprehensive income for
the period....................... -- -- -- 3,275
Return of Axys contribution........ -- -- (415) --
---------- --- ------- -------
Balance at December 31, 1998....... -- -- 3,321 1,464
Net and comprehensive income for
the period....................... -- -- -- 2,122
Return of Axys contribution........ -- -- (558) --
Issuance of Common Stock........... 10,000,000 10 -- --
---------- --- ------- -------
Balance at December 31, 1999....... 10,000,000 10 2,763 3,586
Net and comprehensive income for
the period (unaudited)........... -- -- -- 1,253
Return of Axys Contribution
(unaudited)...................... -- -- (1,223) --
Issuance of Common Stock on
exercise of stock options
(unaudited)...................... 6,250 -- 12 --
---------- --- ------- -------
Balance at March 31, 2000
(unaudited)...................... 10,006,250 $10 $ 1,552 $ 4,839
========== === ======= =======
</TABLE>
See accompanying notes
F-24
<PAGE> 99
AXYS ADVANCED TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- ---------------------
1998(1) 1999(1)(2) 1999(1)(2) 2000(2)
------- ---------- ---------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income..................................... $ 3,275 $ 2,122 $1,271 $ 1,253
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................ 829 976 244 252
Deferred income taxes....................... -- (2,487) -- (194)
Forgiveness of note receivable from
officer................................... 10 -- -- --
Changes in assets and liabilities:
Accounts receivable......................... (1,376) (2,266) (821) (231)
Inventories................................. (435) (1,823) (331) 186
Notes receivable and accrued interest....... (2) (42) -- (1)
Deferred revenue............................ (1,000) 1,400 (333) (533)
Income taxes payable........................ -- 3,950 -- 1,058
------- ------- ------ -------
Net cash provided by operating activities...... 1,301 1,830 30 1,790
Cash flows from investing activities
Expenditures for property and equipment..... (886) (1,222) (16) (579)
------- ------- ------ -------
Net cash used in investing activities.......... (886) (1,222) (16) (579)
Cash flows from financing activities
(Return of capital to) Axys.................... (415) (558) (14) (1,223)
Proceeds from issuance of common stock......... -- 10 -- 12
------- ------- ------ -------
Net cash used in investing activities.......... (415) (548) (14) (1,211)
------- ------- ------ -------
Net increase in cash............................. -- 60 -- --
Cash, beginning of period........................ -- -- -- 60
------- ------- ------ -------
Cash, end of period.............................. $ -- $ 60 $ -- $ 60
======= ======= ====== =======
</TABLE>
- -------------------------
(1) Through May 31, 1999, AAT's activities were included in the operations of
Axys Pharmaceuticals, Inc. AAT's financial statements for these periods have
been prepared on a carve-out basis.
(2) From June 1999, AAT operated as a separate legal entity.
See accompanying notes
F-25
<PAGE> 100
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Axys Advanced Technologies, Inc. ("AAT" or the "Company") was incorporated
in the state of Delaware on June 11, 1999 as a wholly-owned subsidiary of Axys
Pharmaceuticals, Inc. ("Axys") and commenced operations as a separate legal
entity at that time. Prior to its incorporation and since its inception, March
1, 1996, AAT operated as a division of Axys. AAT conceives, produces and sells
large numbers of diverse combinatorial chemistry libraries of drug-like
compounds, as well as more focused libraries based around a specific structure.
In addition, AAT sells the protocols which provide the basis for making the
libraries that are produced and which also provide the basis to make other
similar drug-like compounds against biological targets of interest in an effort
to identify lead compounds for their drug discovery programs. AAT also provides
its enabling technology to certain customers.
The divisional statements of operations for the year ended December 31,
1998 and the 1999 AAT statement of operations (including the pre-incorporation
period from January 1 to June 10, 1999) include all revenue and expenses
directly attributable to AAT, including a corporate allocation of the costs of
facilities, salaries, and employee benefits based on relative headcount.
Additionally, incremental corporate administration, finance, and management
costs have been allocated to AAT (see Note 9).
All of the allocations reflected in the 1998 and 1999 financial statements
are based on assumptions that management believes are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs that would have resulted if AAT had been operated on a
stand-alone basis.
BASIS OF PRESENTATION
The accompanying financial statements include the operations of AAT as part
of Axys (on a carved-out basis as discussed below) from its status as a division
of Axys for the year ended December 31, 1998 (the "divisional statements") and
for the period January 1 to June 10, 1999 (the pre-incorporation period) and as
a separate legal entity from its incorporation through December 31, 1999. The
balance sheet at December 31, 1998 represents the assets, liabilities, and
divisional equity of AAT as a part of Axys and at December 31, 1999 represents
the balance sheet of AAT as a separate legal entity. The divisional financial
statements have been derived from the historical books and records of Axys. The
balance sheet at December 31, 1998 includes all assets and liabilities
specifically identifiable and directly attributable to AAT, which are derived
from historical cost information of Axys and which are presented at the
carryover basis of Axys. Axys' corporate accounting systems were not designed to
track cash receipts and payments and liabilities on a business-specific basis.
INTERIM FINANCIAL INFORMATION
The financial information at March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited but, in the opinion of management, has been
prepared on the same basis as the annual financial statements and includes all
adjustments (consisting only of normal recurring adjustments) that AAT considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flow for such periods. Results for the three months
ended
F-26
<PAGE> 101
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2000 are not necessarily indicative of the results to be expected for
any subsequent period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, and such
differences could be material.
INVENTORIES
Inventories are stated at the lower of cost (weighted average cost) or
market. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------- ---------
1998 1999 2000
---- ------ ---------
<S> <C> <C> <C>
Raw materials............................................ $ 69 $ 156 $ 181
Finished goods........................................... 366 2,102 1,891
---- ------ ------
Total.................................................. $435 $2,258 $2,072
==== ====== ======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are presented at historical carryover basis or cost
less accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the term of the lease or economic useful life,
whichever is shorter. All other fixed assets have estimated useful lives ranging
from 3 to 5 years.
INCOME TAXES
Through May 31, 1999, AAT was not a separate taxable entity for federal,
state, or local income tax purposes, and its operations were included in the tax
returns of Axys. AAT has recognized income taxes under the liability method.
Deferred income taxes are recognized for differences between the financial
statement and tax basis of assets and liabilities at enacted statutory tax rates
in effect for the years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
COMPREHENSIVE INCOME
AAT has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting
comprehensive income (loss) and its components in the financial statements. To
date, AAT's comprehensive income (loss) has equaled its net income (loss).
F-27
<PAGE> 102
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Sales of chemical compound libraries contain one or more of the following
sources of revenue:
- Product Sales: As chemical compound libraries are shipped to customers,
AAT records revenue based on the contracted price per compound.
- License Fees: Payments are generally received when compound supply or
technology license agreements are signed. These revenues are recognized
over the term of the agreement.
- Commitment Fees: Payments received in conjunction with AAT's commitment
to perform certain obligations under compound supply or technology
license agreements. These revenues are recorded over the course of the
relevant agreement, as performance obligations are completed.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and include direct
costs and research-related overhead expenses.
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), AAT has elected to
continue 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 option and purchase plans. See Note 4 for pro forma
disclosures required by FAS 123.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for reporting
information about operating segments in annual financial statements. The Company
has viewed its operations as one segment.
EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share are presented in
conformity with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". Basic earnings per share represents net income divided by the
10,000,000 and 10,006,250 weighted-average number of common shares outstanding
during the year ended December 31, 1999 and the three month period ended March
31, 2000, respectively. Diluted earnings per share represents net income divided
by the weighted-average number of common shares outstanding during the period,
adjusted for the incremental dilution of the 984,025 and 894,479 weighted
average outstanding stock options for 1999 and 2000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging
F-28
<PAGE> 103
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activities" ("FAS 133") which provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. FAS
133 is effective for fiscal years beginning after June 15, 2000. Management does
not anticipate that FAS 137 will have an impact on the Company's results of
operations or financial condition when adopted, as the Company holds no
derivative financial instruments and does not currently engage in hedging
activities.
In December 1999 the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 requires that license
and other up-front fees be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that represent
the culmination of a separate earnings process. The effect of SAB 101 will not
have a material effect on AAT's prior period results.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of AAT's financial instruments, including cash and
accounts receivable approximate fair value because of their short maturities.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1998 1999 2000
------ ------ ---------
<S> <C> <C> <C>
Machinery and equipment................................. $2,946 $3,859 $4,339
Purchased software...................................... 43 47 47
Furniture and office equipment.......................... 90 99 99
Interest in leasehold improvements...................... 2,774 3,070 3,169
------ ------ ------
5,853 7,075 7,654
Less accumulated depreciation and amortization.......... (3,343) (4,319) (4,571)
------ ------ ------
$2,510 $2,756 $3,083
====== ====== ======
</TABLE>
4. STOCKHOLDERS' EQUITY
Common stock was reserved for issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Stock options......................................... 1,765,000 1,758,750
</TABLE>
STOCK OPTIONS
Upon incorporation of AAT, the Company adopted an equity incentive plan
under which AAT grants incentive stock options or non-qualified stock options at
the discretion of the Board of Directors, to employees, directors and
consultants to purchase the Company's common stock.
The number of shares to be purchased, their price, and the terms of payment
are determined by our Board of Directors, provided that the exercise price for
incentive stock options cannot be less than the estimated fair market value on
the date of grant. The options granted generally expire
F-29
<PAGE> 104
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ten years after the date of grant and become exercisable at such times and under
such conditions as determined by the Board of Directors (generally over a four
or five year period).
A summary of our stock option activities and related information follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
---------------------------
WEIGHTED
SHARES NUMBER OF AVERAGE
AVAILABLE SHARES EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Balances at December 31, 1998........................ -- -- $ --
--------- -------- -----
Shares reserved.................................... 1,765,000 -- --
Options granted.................................... (997,025) 997,025 2.00
Options exercised.................................. -- -- --
Options canceled................................... 13,000 (13,000) 2.00
--------- -------- -----
Balances at December 31, 1999........................ 780,975 984,025 $2.00
--------- -------- -----
Options granted.................................... (23,420) 23,420 2.00
Options exercised.................................. -- (6,250) 2.00
Options canceled................................... 106,716 (106,716) 2.00
--------- -------- -----
Balances at March 31, 2000........................... 864,271 894,479 $2.00
========= ======== =====
</TABLE>
The weighted average fair value of stock options outstanding under the plan
was $0.40 in 1999 and the three months ended March 31, 2000, respectively.
At December 31, 1999 and March 31, 2000, the weighted-average contractual
life of outstanding options was 3.75 years and 3.58 years, respectively. Options
exercisable at December 31, 1999 were 35,535 at a weighted-average exercise
price of $2.00 per share and at March 31, 2000 were 80,299 at a weighed-average
exercise price of $2.00 per share.
STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock-based compensation plans because, as discussed below,
the alternative fair value accounting provided for under SFAS 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options and employee stock-based awards. There has been no compensation
expense under APB 25 with respect to such awards.
PRO FORMA DISCLOSURES
Pro forma information regarding net income and net income per share is
required by FAS 123, and has been determined as if the Company had accounted for
its stock-based awards under the fair value method of FAS 123. The fair value
for these stock-based awards was estimated at the date of grant using a
Black-Scholes option-pricing model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's stock-based awards 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 the Company's
stock-based awards to its employees.
F-30
<PAGE> 105
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends, expected life of 4.0 years, expected
volatility of 0.65, and a risk-free interest rate of 5.58%.
For purposes of pro forma disclosures, the estimated fair value of the
stock-based awards are amortized to pro forma net income over the option's
vesting period. The Company's as reported and pro forma information follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Net income
As reported............................................... $2,122 $1,253
Pro forma................................................. 2,098 1,230
Net income per common share -- basic
As reported............................................... $ .21 $ .13
Pro forma................................................. .21 .13
Net income per common share -- diluted
As reported............................................... $ .19 $ .11
Pro forma................................................. .19 .11
</TABLE>
5. COMMITMENTS
LEASES
The Company occupies office space and laboratory facilities currently
leased from Axys. The rent expense allocated by Axys to AAT is based on the
square footage of office and laboratory space occupied by AAT and was $254,900,
$289,600 and $75,000 for the year ended December 31, 1998 and 1999 and for the
three months ended March 31, 2000, respectively.
Effective January 2000, AAT entered into a sub-lease agreement with Axys
related to the office and laboratory space occupied by AAT. Future minimum lease
payments under the sub-lease arrangement with Axys are as follows (in
thousands):
<TABLE>
<S> <C>
2000........................................................ $ 301,185
2001........................................................ 313,226
2002........................................................ 325,756
2003 and thereafter......................................... 309,522
----------
Total minimum lease payments.............................. $1,249,689
==========
</TABLE>
RESEARCH AND DEVELOPMENT AGREEMENT
In December 1999, the Company entered into a combinatorial chemistry
agreement with a third party whereby AAT is obligated to deliver certain
compounds in connection with the collaborative research and development efforts.
The compounds have an estimated cost of $440,000 and are to be delivered through
September 2000. There were no shipments for the year ended December 31, 1999.
Inventory with a cost of $122,000 was shipped during the three months ended
March 31, 2000.
F-31
<PAGE> 106
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE BENEFIT PLAN
Axys maintains a 401(k) retirement savings plan that includes all eligible
employees of AAT. Each participant in the plan may elect to contribute 1% to 20%
of his or her annual salary to the plan, subject to statutory limitations. Axys
matches 50% of the first 6% of the salary contributed by the employee. Axys'
match is done with Axys stock. The related expense allocated by Axys and charged
to AAT operations relative to AAT employees was $47,444 and $68,370 for the
years ended December 31, 1998 and 1999, respectively. There was no expense for
the three months ended March 31, 2000.
7. INCOME TAXES
The net income incurred for the year ended December 31, 1998 and the
pre-incorporation period to June 10, 1999 are attributable to the operations of
the Company as a division of Axys and were included in the income tax returns
filed by Axys. Because the Company will not receive any benefit for historical
operating losses incurred by Ayxs through the pre-incorporation period, no
income tax benefit has been reflected for those periods. AAT has recognized
income taxes under the liability method.
The provision for income taxes shown in the accompanying statement of
operations for the period ended December 31, 1999 and for the three months ended
March 31, 2000 consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1999 2000
------------ ---------------
<S> <C> <C>
Current:
Federal................................... $ 3,093 $ 828
State..................................... 857 230
------- ------
Totals................................. 3,950 1,058
------- ------
Deferred:
Federal................................... (1,947) (152)
State..................................... (540) (42)
------- ------
Totals................................. (2,487) (194)
------- ------
Totals................................. $ 1,463 $ 864
======= ======
</TABLE>
The effective rate of the provision for income taxes reconciles to the
amount computed by applying the federal statutory rate to income before
provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 11, 1999, THREE MONTHS
DATE OF INCORPORATION, ENDED MARCH 31,
TO DECEMBER 31, 1999 2000
---------------------- ---------------
<S> <C> <C>
Income before income taxes.................... $3,575 $2,117
------ ------
Expected tax at 35%........................... 1,251 741
State income tax, net of federal benefit...... 206 122
Other......................................... 6 1
------ ------
Total tax..................................... $1,463 $ 864
====== ======
Effective tax rate............................ 41% 41%
</TABLE>
F-32
<PAGE> 107
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes are recognized for differences between the financial
statements and tax basis of assets and liabilities at enacted statutory tax
rates in effect for the years in which the differences are expected to reverse.
The effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. In addition, valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Significant components of net deferred tax assets at
December 31, 1999 and March 31, 2000 consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Deferred Tax Assets Inventory reserves.................... $2,555 $2,740
Accrued compensation.................................... 121 144
------ ------
2,676 2,884
Deferred tax allowance............................... -- --
------ ------
Total deferred tax assets............................ 2,676 2,884
------ ------
Deferred Tax Liabilities State income tax................. 189 203
------ ------
Net deferred tax asset............................... $2,487 $2,681
====== ======
</TABLE>
8. REVENUES FROM SIGNIFICANT PARTNERS AND CUSTOMERS
Major customers, responsible for 10% or more of revenues, include drug
discovery partners and pharmaceutical and biotechnology companies that purchase
AAT compound libraries. The percentages of sales of each of these third party
major customers to total revenue derived from third parties for the year ended
December 31, 1998 and 1999 and for the three months ended March 31, 2000 were as
follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Customer A................................................. 26% 9% --%
Customer B................................................. 58 45 23
Customer C................................................. 14 13 5
Customer D................................................. -- 14 29
Customer E................................................. -- 7 15
Customer F................................................. -- -- 28
All Others................................................. 2 12 --
--- --- ---
Total...................................................... 100% 100% 100%
=== === ===
</TABLE>
As of December 31, 1998 and 1999 and March 31, 2000, two, three and four
customers comprised 98%, 72% and 86%, respectively, the accounts receivable
balances. AAT does not require collateral for potential credit losses. These
losses have been immaterial to date.
9. RELATED PARTY TRANSACTIONS OF AAT
TRANSFER OF INVENTORIES
In connection with Axys research and development efforts, AAT transferred
inventory, at cost, to Axys. The inventory transfers were $363,000 $782,000,
$210,000 and $114,000 for the year ended December 31, 1998 and 1999 and for the
three months ended March 31, 1999 and 2000, respectively. These amounts are
included in product revenues and cost of goods sold.
F-33
<PAGE> 108
AXYS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FUNDING
AAT utilizes Axys' centralized cash management services and processes
related to receivables, payables, payroll, and other activities. AAT's net cash
requirements are funded by Axys. Net financing provided by Axys to AAT in 1997
was approximately $3,736,000. The Company returned approximately $415,000,
$558,000 and $1,223,000 of Axys' contributions in 1998, 1999 and as of March 31,
2000, respectively. These amounts are included in division equity. Amounts
financed by Axys did not bear interest.
CORPORATE SERVICES
In accordance with the Staff Accounting Bulletin No. 55, expense
allocations have been reflected in these financial statements. These expenses
include corporate communications, management compensation and benefits
administration, payroll, accounts payable, income tax compliance, and other
administration and finance overhead. Allocations and charges were based on
either a direct cost pass-through for incremental corporate administration,
finance and management costs and a percentage allocation of costs for other
services provided based on factors such as headcount and relative expenditure
levels. Such allocations and charges totaled approximately $3,229,000 $3,147,000
and $636,000 for the years ended December 31, 1998 and 1999 and for the three
months ended March 31, 2000, respectively. Management believes that the basis
used for allocating corporate services is reasonable. However, the terms of
these transactions may differ from those that would have resulted from
transactions among unrelated parties.
10. SUBSEQUENT EVENTS (UNAUDITED)
On April 28, 2000 Axys consummated a definitive agreement with Discovery
Partners International, Inc. ("DPI") to merge AAT with a subsidiary of DPI.
F-34
<PAGE> 109
DISCOVERY PARTNERS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
INTRODUCTION
On April 28, 2000, Discovery Partners International, Inc. ("DPI") completed
the acquisition of Axys Advanced Technologies, Inc. ("AAT").
The unaudited pro forma combined condensed financial statements which
follow have been prepared by DPI based upon the historical financial statements
of DPI and AAT, and may not be indicative of the results that may have actually
occurred if the combination had been in effect on the date indicated or for the
periods presented or which may be obtained in the future. The unaudited pro
forma combined condensed statements of operations includes the statements of
operations of both DPI and AAT for the year ended December 31, 1999 and the
three months ended March 31, 2000. The pro forma combined condensed financial
statements should be read in conjunction with the audited financial statements
and notes of DPI and AAT included elsewhere in the Prospectus.
The unaudited pro forma combined condensed statements of operations for the
year ended December 31, 1999 and the three months ended March 31, 2000 assume
the purchase of AAT had been consummated on January 1, 1999. The pro forma
information is based on the historical financial statements of DPI and AAT
giving effect to the transaction under the purchase method of accounting and the
assumptions and adjustments in the accompanying footnotes.
F-35
<PAGE> 110
DISCOVERY PARTNERS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
DISCOVERY AXYS
PARTNERS ADVANCED PRO FORMA COMBINED
INTERNATIONAL, INC. TECHNOLOGIES, INC. ADJUSTMENTS PRO FORMA
------------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash......................................... $ 984 $ 60 $ (50)(c) $ 994
Accounts receivables, net.................... 3,082 4,637 -- 7,719
Inventory.................................... 2,463 2,072 4,428(c) 8,963
Prepaid and other current assets............. 365 2,681 (2,681)(c) 365
-------- ------- -------- --------
Total current assets....................... 6,894 9,450 1,697 18,041
Property and equipment, net.................... 5,296 3,083 -- 8,379
Restricted cash and cash equivalents and other
assets....................................... 2,430 76 -- 2,506
Patent and license rights, net................. 1,079 -- -- 1,079
Intangible assets, net......................... 6,051 -- 35,339(c) 41,390
-------- ------- -------- --------
Total assets............................... $ 21,750 $12,609 $ 37,036 $ 71,395
======== ======= ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses........ $ 2,030 $ -- $ 250(e) $ 2,280
Income taxes payable......................... -- 5,008 (5,008)(c) --
Current portion of obligations under capital
leases and notes payable................... 202 -- -- 202
Line of credit............................... 763 -- -- 763
Deferred revenue............................. 1,849 1,200 -- 3,049
Notes payable to shareholders................ 6,000 -- 550(c) 6,550
-------- ------- -------- --------
Total current liabilities.................. 10,844 6,208 (4,208) 12,844
Obligations under capital leases and equipment
notes payable, less current portion.......... 936 -- -- 936
Deferred rent.................................. 55 -- -- 55
Long-term debt................................. 1,569 -- -- 1,569
Redeemable convertible preferred stock......... 27,907 -- -- 27,907
Stockholders' equity (deficit)
Paid in capital................................ 1,954 1,562 (10)(a) 60,399
54,534(c)
(1,552)(a)
3,911(c)
Accumulated other comprehensive loss........... (152) -- -- (152)
Accumulated income (deficit)................... (21,363) 4,839 (4,839)(b) (21,363)
(10,800)(d) (10,800)
-------- ------- -------- --------
Total stockholders' equity (deficit)....... (19,561) 6,401 41,244 28,084
-------- ------- -------- --------
Total liabilities, redeemable preferred
stock and stockholders' equity
(deficit)................................ $ 21,750 $12,609 $ 37,036 $ 71,395
======== ======= ======== ========
</TABLE>
(a) Elimination of existing AAT common stock and additional paid in capital.
(b) Elimination of AAT's accumulated income.
(c) Issuance of cash of $50,000, issuance of promissory notes to AAT
shareholders of $550,000, assumption by DPI of options to purchase common
stock of DPI with a value of $3,101,000, issuance of a warrant to purchase
200,000 shares of DPI common stock valued at $810,000, and issuance of DPI
common stock valued at $54,534,000. Adjustment to record the net assets of
AAT at the preliminary estimate of fair value including a portion of the
total purchase price to assembled workforce and below market lease and with
costs in excess of net assets acquired allocated to goodwill. The Company is
in the process of obtaining a report from an independent valuation firm and
performing other procedures to enable it to obtain all information necessary
to complete the purchase price allocation.
(d) Write-off of AAT's in-process research and development.
(e) Accrue estimated acquisition costs to be paid by DPI.
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-36
<PAGE> 111
DISCOVERY PARTNERS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DISCOVERY AXYS
PARTNERS ADVANCED PRO FORMA COMBINED
INTERNATIONAL, INC. TECHNOLOGIES, INC. ADJUSTMENTS PRO FORMA
------------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................. $13,076 $13,974 $ -- $ 27,050
Cost of revenues..................... 8,235 3,480 242(b) 11,957
------- ------- ------- -----------
Gross margin.................... 4,841 10,494 (242) 15,093
Cost and expenses:
Research and development............. 3,538 5,062 359(b) 8,959
Selling, general and
administrative..................... 4,439 1,847 132(b) 6,418
Amortization of goodwill............. -- -- 3,279(a) 3,279
Amortization of deferred
compensation....................... 311 -- -- 311
------- ------- ------- -----------
Total operating expenses........ 8,288 6,909 3,770 18,967
------- ------- ------- -----------
Income (loss) from operations........ (3,447) 3,585 (4,012) (3,874)
Interest income, net................. 211 -- (56)(f) 155
Other expense........................ (134) -- -- (134)
Provision for income taxes........... -- (1,463) 1,463(c) --
------- ------- ------- -----------
Net income (loss).................... $(3,370) $ 2,122 $(2,605) $ (3,853)(d)
======= ======= ======= ===========
Net loss per share, basic and
diluted............................ $ (.45)(e)
===========
Shares used in the calculation of
historical net loss per share,
basic and diluted.................. 8,554,681
===========
Pro forma net loss per share, basic
and diluted........................ $ (.25)(e)
===========
Shares used in the calculation of pro
forma net loss per share, basic and
diluted............................ 15,158,461
===========
</TABLE>
- -------------------------
(a) Adjustment to reflect the twelve-month amortization of goodwill based on the
preliminary allocation of the assumed purchase price.
(b) Adjustment to reflect the twelve-month amortization of assembled workforce
and below market lease based on the preliminary allocation of the assumed
purchase price.
(c) Adjustment to eliminate the provision for income taxes recorded by AAT.
(d) The pro forma combined statement of operations does not include a $10.8
million charge for the write-off of in process research and development that
will be recorded on April 28, 2000, the closing date of the acquisition of
AAT.
(e) Net loss per share, basic and diluted is based on DPI's weighted average
common shares outstanding, after giving effect to the issuance of shares of
DPI's common stock used to complete the acquisition as if such issuance had
occurred at the beginning of the periods. Pro forma net loss per share,
basic and diluted also includes the assumed conversion of all of DPI's
outstanding shares of redeemable preferred stock as of their original dates
of issuance.
(f) Adjustment to record interest expense for the issuance of promissory notes
of $550,000 and the reduction of interest income due to $300,000 in cash
paid in conjunction with the acquisition.
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-37
<PAGE> 112
DISCOVERY PARTNERS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DISCOVERY AXYS
PARTNERS ADVANCED PRO FORMA COMBINED
INTERNATIONAL, INC. TECHNOLOGIES, INC. ADJUSTMENTS PRO FORMA
------------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................. $ 5,173 $5,340 $ -- $ 10,513
Cost of revenues..................... 3,053 1,132 60(b) 4,245
------- ------ ------- -----------
Gross margins................... 2,120 4,208 (60) 6,268
Cost and expenses:
Research and development............. 619 1,474 90(b) 2,183
Selling, general and
administrative..................... 1,519 617 33(b) 2,169
Amortization of goodwill............. 155 -- 820(a) 975
Amortization of deferred
compensation....................... 264 -- -- 264
------- ------ ------- -----------
Total operating expenses........ 2,557 2,091 943 5,591
------- ------ ------- -----------
Income (loss) from operations........ (437) 2,117 (1,003) 677
Interest expense, net................ (1,322) -- (14)(f) (1,336)(d)
Other income......................... 129 -- -- 129
Provision for income taxes........... -- (864) 411(c) (453)
======= ====== ======= ===========
Net income (loss).................... $(1,630) $1,253 $ (606) $ (983)(d)
======= ====== ======= ===========
Historical net loss per share, basic
and diluted........................ $ (.11)(e)
===========
Shares used in the calculation of
historical net loss per share,
basic and diluted.................. 8,753,501
===========
Pro forma net loss per share, basic
and diluted........................ $ (.06)(e)
===========
Shares used in the calculation of pro
forma net loss per share, basic and
diluted............................ 15,368,330
===========
</TABLE>
- -------------------------
(a) Adjustment to reflect the three-month amortization of goodwill based on the
preliminary allocation of the assumed purchase price.
(b) Adjustment to reflect the three-month amortization of assembled workforce
and below market lease based on the preliminary allocation of the assumed
purchase price.
(c) Adjustment to reduce the provision for income taxes recorded by AAT by DPI's
tax rate of 41%.
(d) The pro forma combined statement of operations does not include a $10.8
million charge for the write-off of in process research and development that
will be recorded on April 28, 2000, the closing date of the acquisition of
AAT.
(e) Net loss per share, basic and diluted, is based on DPI's weighted average
common shares outstanding, after giving effect to the issuance of shares of
DPI's common stock used to complete the acquisition as if such issuance had
occurred at the beginning of the periods. Pro forma net loss per share,
basic and diluted, also includes the assumed conversion of all of DPI's
outstanding shares of redeemable preferred stock as of their original dates
of issuance.
(f) Adjustment to record interest expense for the issuance of promissory notes
of $550,000 and the reduction of interest income due to $300,000 in cash
paid in conjunction with the acquisition.
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-38
<PAGE> 113
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1.
The unaudited pro forma combined condensed financial statements reflect the
acquisition of Axys Advanced Technologies, Inc. ("AAT") by Discovery Partners
International, Inc. ("DPI") for a purchase price of approximately $59.3 million
consisting of cash, notes payable and common stock in April 2000 (see Note 4).
NOTE 2.
The unaudited pro forma combined condensed balance sheet combines DPI's
March 31, 2000 unaudited balance sheet with AAT's March 31, 2000 unaudited
balance sheet.
NOTE 3.
The unaudited pro forma combined condensed statement of operations for the
three months ended March 31, 2000 combines DPI's unaudited statement of
operations for the three months ended March 31, 2000 with AAT's unaudited
statement of operations for the three months ended March 31, 2000. The unaudited
pro forma combined condensed statement of operations for the year ended December
31, 1999 combines DPI's audited statement of operations for the year ended
December 31, 1999 with AAT's audited statement of operations for the year ended
December 31, 1999. The unaudited pro forma combined condensed statements of
operations have been prepared by DPI based upon the historical financial
statements of DPI and AAT, and may not be indicative of the results that may
have actually occurred if the combination had been in effect on the date
indicated or the periods presented or which may be obtained in the future. The
pro forma combined condensed financial statements should be read in conjunction
with the audited financial statements and notes of DPI and AAT included
elsewhere in the Prospectus.
NOTE 4.
Upon the consummation of the acquisition, DPI acquired all of the common
stock of AAT in exchange for 7,429,641 shares of common stock of DPI, the
assumption by DPI of options to acquire up to 677,236 additional shares of DPI
common stock at a weighted average exercise price of $2.72 per share, the
issuance of a warrant to purchase 200,000 shares of DPI common stock, the
issuance of cash totaling $50,000 and the issuance of promissory notes totaling
$550,000. The purchase price is calculated to be $59,295,000 based on the fair
market value of $7.34 per share of DPI common stock. The purchase price also
includes estimated merger costs of $250,000 and assumed liabilities of
F-39
<PAGE> 114
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 4. (CONTINUED)
$1,200,000. The purchase price was allocated as follows based upon the
preliminary valuation of the tangible and intangible assets, including acquired
in-process research and development:
<TABLE>
<S> <C>
Total acquisition costs:
Cash paid at acquisition.................................. $ 50,000
Issuance of promissory note............................... 550,000
Issuance of common stock, warrant and stock options....... 58,445,000
Acquisition related expenses.............................. 250,000
-----------
$59,295,000
===========
Allocated to assets and liabilities as follows:
Tangible assets acquired.................................. $14,356,000
Assumed liabilities....................................... (1,200,000)
In-process research and development....................... 10,800,000
Assembled workforce....................................... 1,300,000
Below market value lease.................................. 1,200,000
Goodwill.................................................. 32,839,000
-----------
$59,295,000
===========
</TABLE>
NOTE 5.
The allocation of the purchase price was applied to the historical balance
sheet and historical statements of operations of DPI and AAT to arrive at the
unaudited pro forma combined condensed balance sheet at March 31, 2000 and
statement of operations for the year ended December 31, 1999 and the three
months ended March 31, 2000. Adjustments were made to record the net assets of
AAT at the preliminary estimate of fair value including a portion of the total
purchase price to assembled work force and below market lease and costs in
excess of net assets acquired were allocated to goodwill. The Company is in the
process of obtaining a report from an independent valuation firm and performing
other procedures to enable it to obtain all information necessary to complete
the purchase price allocation.
F-40
<PAGE> 115
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
LOGO
COMMON STOCK
----------------------
PROSPECTUS
----------------------
CHASE H&Q
LEHMAN BROTHERS
UBS WARBURG LLC
----------------------
, 2000
----------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON SHARES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON SHARES OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 2000 (THE 25TH DAY AFTER COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON SHARES, 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> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant are as follows. All amounts other
than the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee are estimates.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 350,000
Printing and engraving...................................... 150,000
Blue Sky fees and expenses (including legal fees)........... 5,000
Transfer agent fees......................................... 3,500
Miscellaneous............................................... 54,140
----------
Total............................................. $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases) or (iv) for any transaction from which
the director derived an improper personal benefit. As permitted by the Delaware
General Corporation Law, the Bylaws of the Registrant provide that (i) the
Registrant is required to indemnify its directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to certain
very limited exceptions, (ii) the Registrant may indemnify its other employees
and agents as set forth in the Delaware General Corporation Law, (iii) the
Registrant is required to advance expenses, as incurred, to its directors and
executive officers in connection with a legal proceeding to the fullest extent
permitted by the Delaware General Corporation Law, subject to certain very
limited exceptions and (iv) the rights conferred in the Bylaws are not
exclusive. At present, there is no pending litigation or proceeding involving a
director, officer or employee of the Registrant regarding which indemnification
is sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification. Reference is also made to Section
[ ] of the Underwriting Agreement, which provides for the
indemnification of officers, directors and controlling persons of the Registrant
against certain liabilities. In addition, certain of the intercompany agreements
provide for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provisions in
the Registrant's Certificate of Incorporation and in its Bylaws may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act. The
Registrant, with approval by the Registrant's Board of Directors, expects to
obtain directors' and officers' liability insurance. Reference is made to the
following documents
II-1
<PAGE> 117
filed as exhibits to this registration statement regarding relevant
indemnification provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Form of Certificate of Incorporation of Registrant (to be in
effect in Delaware upon the closing of this offering)..... 3.3
Form of Bylaws of Registrant (to be in effect in Delaware
upon the closing of this offering)........................ 3.5
Form of Indemnification Agreement........................... 10.65
</TABLE>
The Company has entered into indemnification agreements with each of the
Company's directors, a form of which is attached as an exhibit hereto and is
incorporated herein by reference.
The Registrant has obtained, and may continue to carry, insurance for the
protection of its directors and officers against any liability asserted against
them in their official capacities. The rights of indemnification described above
are not exclusive of any other rights of indemnification to which the persons
indemnified may be entitled under any bylaw, agreement, vote of stockholders or
directors or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have issued unregistered securities to a limited
number of persons as described below:
(a) Since January 1, 1997 through May 5, 2000, we issued bonus stock
grants, totaling 16,800 shares of common stock to several employees and
consultants in consideration for services they had provided us. The fair
market value of these shares of common stock on the dates of grant was
$0.30 per share, resulting in an aggregate fair market value of $5,040.
This grants of common stock were issued pursuant to our 1995 Stock
Option/Stock Issuance Plan.
(b) On October 31, 1997, we sold 333,333 shares of Series C preferred
stock at a price of $6.00 per share to a strategic partner for an aggregate
purchase price of $2,000,000.
(c) On May 22 and June 15, 1998 we sold an aggregate of 2,228,945
shares of Series D preferred stock at a price of $7.20 per share to a group
of strategic partners and private investors for an aggregate purchase price
of $16,048,404.
(d) On April 7, 2000, we sold an aggregate of 1,392,503 shares of
Series E preferred stock at a price of $8.00 per share to a group of
private investors for an aggregate purchase price of $11,140,024. We
received $5,023,000 in cash from this private sale; the remaining
$6,117,024 was used to retire several promissory notes held by certain of
the investors in this Series E financing.
(e) On April 11, 2000, we issued (i) 7,425,000 shares of common stock
valued at $8 per share and a warrant to purchase an additional 200,000
shares of common stock at an exercise price of $8 per share to Axys
Pharmaceuticals, Inc. ("Axys"), and (ii) 4,641 shares of common stock to a
minority stockholder of AAT in connection with our acquisition of AAT
pursuant to that certain Agreement and Plan of Merger between us, Axys,
DPII Newco, LLC and AAT.
(f) On May 5, 2000, in conjunction with our acquisition of Structural
Proteomics, Inc., we issued 150,000 shares of our common stock to two
founders of Structural Proteomics.
(g) Since January 1, 1997 through May 5, 2000, we have issued warrants
to purchase our capital stock in the transactions described below:
On February 2, 1998 and April 15, 1998 we executed convertible
promissory notes in favor of certain existing investors. In connection
with these promissory notes, we issued
II-2
<PAGE> 118
warrants to purchase a number of shares of our common stock that was
tied to the amount of time that the promissory note held by such party
had any unpaid balance. The warrants issued on February 2 have an
exercise price of $0.40 and shall expire no later than February 2, 2004;
the warrants issued on April 15 have an exercise price of $0.48 per
share and shall expire no later than April 15, 2004.
On May 22, 1998, each of the convertible promissory notes
referenced above was satisfied in full by converting such note into
shares of our Series D preferred stock, and in connection with those
conversions the number of shares for which each warrant referenced above
is exercisable was set, in each case according to the following table:
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
UNDERLYING UNDERLYING
2/2/98 4/15/98
NAME WARRANT WARRANT
---- ------------ ------------
<S> <C> <C>
Enterprise Partners III, L.P............ 18,868 4,471
Enterprise Partners III Associates,
L.P................................... 1,499 355
Mayfield VIII........................... 16,461 3,901
Mayfield Associates Fund II............. 866 205
Crosspoint Venture Partners-1996........ 11,210 2,656
------ ------
48,904 11,588
</TABLE>
On December 10, 1999 and March 9, 2000 we executed convertible
promissory notes in favor of certain existing investors. In connection
with these promissory notes, we issued warrants to purchase a number of
shares of our Series E preferred stock that was tied to the amount of
time that the promissory note held by such party had any unpaid balance.
The warrants issued on December 10 have an exercise price of $5.00 and
shall expire no later than December 10, 2006; the warrants issued on
March 9 also have an exercise price of $5.00 per share and shall expire
no later than April 15, 2004.
On April 7, 2000, each of the convertible promissory notes issued
on December 10, 1999 and March 9, 2000 was satisfied in full by
converting such note into shares of our Series E Preferred Stock, and in
connection with those conversions the number of shares for which each
warrant issued on December 10, 1999 and March 9, 2000 is exercisable was
set, according to the following table:
<TABLE>
<CAPTION>
SHARES OF
SERIES E
PREFERRED STOCK
UNDERLYING
NAME WARRANTS
---- ---------------
<S> <C>
Enterprise Partners III, L.P........................ 72,487
Enterprise Partners III Associates, L.P............. 5,759
Mayfield VIII....................................... 74,334
Mayfield Associates Fund II......................... 3,912
Crosspoint Venture Partners LS-1997................. 78,246
-------
234,739
</TABLE>
On April 28, 2000, in conjunction with the Agreement and Plan of
Merger between us, Axys Pharmaceuticals, Inc. ("Axys"), DPII Newco, LLC
and Axys Advanced Technologies, Inc., we issued a warrant to Axys to
purchase 200,000 of our common shares at an exercise price of $8 per
share. This warrant shall expire no later than April 28, 2005.
(h) The Registrant from time to time has granted stock options to
employees and consultants in reliance upon exemption from registration
pursuant to either (1) Section 4(2) of
II-3
<PAGE> 119
the Securities Act of 1933 or (2) Rule 701 promulgated under the Securities
Act of 1933. Information regarding such grants is set forth below:
- From January 1, 1997 through December 31, 1997, we sold an aggregate
of 488,885 shares of our common stock at exercise prices ranging from
$0.30 to $0.40 per share pursuant to our 1995 Stock Option/Stock
Issuance Plan.
- From January 1, 1998 through December 31, 1998, we sold an aggregate
of 1,087,700 shares of our common stock at exercise prices ranging
from $0.40 to $1.50 per share pursuant to our 1995 Stock Option/Stock
Issuance Plan.
- From January 1, 1999 through December 31, 1999, we sold an aggregate
of 198,500 shares of our common stock at exercise prices ranging from
$1.50 to $2.50 per share pursuant to our 1995 Stock Option/Stock
Issuance Plan.
- From January 1, 2000 through May 5, 2000, we sold an aggregate of
492,920 shares of our common stock at exercise prices ranging from
$2.50 to $8.00 per share pursuant to our 1995 Stock Option/Stock
Issuance Plan.
For additional information concerning these transactions, please see
"Management -- Benefit Plans" in the Prospectus included in this registration
statement.
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering, or (2)
Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
2.1+ Agreement and Plan of Merger among us DPII Newco, LLC, Axys
Pharmaceuticals, Inc., and Axys Advanced Technologies, Inc.,
dated April 11, 2000.
2.2 Voting Share Purchase Agreement between us and Dr. Heinrich
Zinsli, Dr. Ernst Burgisser, Dr. Helmut Kessmann and
Christoph Grether, dated August 10, 1999.
2.3 Second Closing Protocol between us and Dr. Heinrich Zinsli,
Dr. Ernst Burgisser, Dr. Helmut Kessmann and Christoph
Grether, dated December 23, 1999.
2.4 Non-Voting Share Purchase Agreement between us and Novartis
AG, dated December 23, 1999.
2.5* Stock Purchase Agreement among us, Structural Proteomics,
Inc., Richard Fine and Boris Klebansky, dated May 5, 2000.
3.1 Restated Articles of Incorporation, as amended, in effect in
California prior to the reincorporation.
3.2* Certificate of Incorporation in effect in Delaware after the
reincorporation.
3.3 Bylaws.
3.4* Form of Bylaws to be in effect upon the closing of this
offering.
4.1* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Series E Preferred Stock Purchase Agreement among us and the
investors listed on Schedule A thereto, dated April 7, 2000.
10.2 Second Amended and Restated Investors' Rights Agreement
among us and the investors listed on Schedule A thereto,
dated April 28, 2000.
10.3 Amendment No. 1 to Amended and Restated Shareholders'
Agreement among us and the investors listed on Schedule A
thereto, dated April 28, 2000.
</TABLE>
II-4
<PAGE> 120
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S> <C>
10.4 Amendment No. 3 to Voting Agreement among us and the
investors listed therein, dated April 28, 2000.
10.5* Common Stock Purchase and Asset Contribution Agreement
between Axys Pharmaceuticals, Inc. and Axys Advanced
Technologies, Inc., dated November 17, 1999.
10.6* Technology Assignment and License Agreement between Axys
Pharmaceuticals, Inc. and Axys Advanced Technologies, Inc.,
dated April 28, 2000.
10.7 Non-Competition and Non-Disclosure Agreement between us and
Axys Pharmaceuticals, Inc., dated April 28, 2000.
10.8+ Indemnity Escrow Agreement between us and Axys
Pharmaceuticals, Inc., dated April 28, 2000.
10.9* License Agreement Concerning Shared Space between us and
Axys Pharmaceuticals, Inc., dated April 28, 2000.
10.10 First Amendment to Sublease between Axys Pharmaceuticals,
Inc. and Axys Advanced Technologies, Inc., dated April 28,
2000.
10.11* Compound Supply Agreement between us and Axys
Pharmaceuticals, Inc., dated April 28, 2000.
10.12 Standstill Agreement between us and Axys Pharmaceuticals,
Inc., dated April 28, 2000.
10.13 Shareholders Agreement between us and Dr. Heinrich Zinsli,
Dr. Ernst Burgisser and Dr. Helmut Kessmann, dated August
10, 1999.
10.14* Rights Agreement between us, Structural Proteomics, Inc.,
Richard Fine, Boris Klebansky and Arnold Hagler, dated March
5, 2000.
10.15 Common Stock Purchase Warrant between us and Enterprise
Partners III, L.P., dated July 18, 1995.
10.16 Warrant Agreement to Purchase Shares of Series A Preferred
Stock between us and Comdisco, Inc., dated February 9, 1996.
10.17 Warrant Agreement to Purchase Shares of Series A Preferred
Stock between us and Comdisco, Inc., dated February 9, 1996.
10.18 Form of Warrant to Purchase Shares of Common Stock between
us and the entities listed on the attached schedule, dated
February 2, 1998.
10.19 Form of Warrant to Purchase Shares of Common Stock between
us and the entities listed on the attached schedule, dated
April 15, 1998.
10.20 Form of Warrant to Purchase Shares of Series A Preferred
Stock between us and the entities listed on the attached
schedule, dated May 20, 1998.
10.21 Warrant to Purchase Common Stock between us and Crosspoint
Venture Partners-1996, dated May 20, 1998.
10.22 Pledge Agreement between us and Riccardo Pigliucci, dated
November 30, 1998.
10.23 Promissory Note issued by Riccardo Pigliucci, dated November
30, 1998.
10.24 Pledge Agreement between us and Riccardo Pigliucci, dated
January 31, 1999.
10.25 Promissory Note issued by Riccardo Pigliucci, dated January
31, 1999.
10.26 Promissory Note and Warrant Purchase Agreement between us
and the investors listed on Exhibit A thereto, dated
December 10, 1999.
10.27 Form of Promissory Note between us and the entities listed
on the attached schedule, dated December 10, 1999.
10.28 Form of Warrant to Purchase Shares of Capital Stock between
us and the entities listed on the attached schedule, dated
December 10, 1999.
10.29 Promissory Note and Warrant Purchase Agreement between us
and Crosspoint Venture Partners LS-1997, dated March 9,
2000.
10.30 Promissory Note between us and Crosspoint Venture Partners
LS-1997, dated March 9, 1999.
10.31 Warrant to Purchase Shares of Capital Stock between us and
Crosspoint Venture Partners LS-1997, dated March 9, 1999.
</TABLE>
II-5
<PAGE> 121
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S> <C>
10.32 Master Lease Agreement between us and Comdisco, Inc., dated
February 9, 1996.
10.33* Master Security Agreement between us and General Electric
Capital Corporation, dated November 1, 1999, as amended.
10.34* Equipment Financing Agreement between us and Lease
Management Services, Inc., dated October 27, 1995, as
amended.
10.35+ Assignment Agreement between us and Ontogen Corporation,
dated December 17, 1998.
10.36 Standby Letter of Credit between us and Bank of America,
dated February 3, 1999.
10.37+ Non-Exclusive Sublicense Agreement between us and Trega
Biosciences, Inc., dated May 1, 1998.
10.38 Indemnification Agreement between us and Sokymat, S.A.,
dated April 19, 1999.
10.39+ Strategic Alliance Agreement between us and Bristol-Myers
Squibb Company, dated May 22, 1998.
10.40+ Strategic Alliance Agreement between us and Aventis
(formerly Rhone-Poulenc Rorer International, Inc.), dated
June 15, 1998.
10.41+ Combinatorial Chemistry Agreement between Axys
Pharmaceuticals, Inc. and Warner-Lambert Company, dated May
15, 1998.
10.42* Letter Agreement between Discovery Technology, Ltd. and
Basler Kantonalbank, dated December 22, 1999.
10.43 Loan Agreement between Discovery Technology, Ltd. and
Novartis International AG, dated December 23, 1999.
10.44 Guaranty between us and Novartis International AG, dated
December 23, 1999.
10.45 Industrial Lease between Irvine Company and us, dated
February 17, 1999.
10.46 IRORI (Europe) Limited Lease of Unit 5, dated December 22,
1997.
10.47* Leasehold Contract between Basler Kantonalbank and Discovery
Technology, Ltd., dated June 20, 1997 (English version).
10.48* Leasehold Contract between Basler Kantonalbank and Discovery
Technology, Ltd., dated June 20, 1997 (German version).
10.49 Directorship Agreement between us and Dieter Hoehn, dated
December 15, 1996.
10.50* Letter Agreement terminating Directorship Agreement with
Dieter Hoehn, dated May 8, 2000.
10.51++ Key Employment Agreement between us and Riccardo Pigliucci,
dated April 17, 1998.
10.52 1995 Stock Option/Stock Issuance Plan, as amended.
10.53 1995 Stock Option/Stock Issuance Plan, Form of Notice of
Grant.
10.54 1995 Stock Option Plan/Stock Issuance Plan, Form of Stock
Option Agreement.
10.55 1995 Stock Option Plan, Form of Stock Purchase Agreement.
10.56* 1995 Stock Option/Stock Issuance Plan, Form of Bonus Stock
Issuance Agreement.
10.57 Axys Advanced Technologies, Inc. 1999 Equity Incentive Plan.
10.58 Axys Advanced Technologies, Inc. 1999 Equity Incentive Plan,
Form of Stock Option Agreement.
10.59* 2000 Stock Incentive Plan.
10.60* 2000 Stock Incentive Plan, Form of Notice of Grant.
10.61* 2000 Stock Incentive Plan, Form of Stock Option Agreement.
10.62* 2000 Stock Incentive Plan, Form of Stock Purchase Agreement.
10.63* 2000 Stock Incentive Plan, Form of Stock Issuance Agreement.
10.64* 2000 Employee Stock Purchase Plan.
10.65 Form of Indemnification Agreement between us and each of our
directors and officers.
</TABLE>
II-6
<PAGE> 122
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S> <C>
10.66++ Employment Contract between us and Dr. Heinrich Zinsli,
dated August 10, 1999.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young, LLP, independent auditors.
23.2 Consent of Ernst & Young, LLP, independent auditors.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page on Page II-8).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.
++ Management compensation agreement.
(b) Financial Statement Schedules.
None
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC 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 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 Securities Act
of 1933 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 Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933 each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 123
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 San Diego, California, on this 9th
day of May 2000.
DISCOVERY PARTNERS INTERNATIONAL, INC.
By: /s/ RICCARDO PIGLIUCCI
------------------------------------
Name: Riccardo Pigliucci
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Discovery Partners
International, Inc. (the "Company"), hereby severally constitute and appoint
Riccardo Pigliucci, President and Chief Executive Officer, and Jack Fitzpatrick,
Chief Financial Officer, and each of them individually, with full powers of
substitution and resubstitution, our true and lawful attorneys, with full powers
to them and each of them to sign for us, in our names and in the capacities
indicated below, the Registration Statement on Form S-1 filed with the SEC, and
any and all amendments to said Registration Statement (including post-effective
amendments), and any registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933 in connection with the registration under the
Securities Act of 1933 of the Company's common stock, and to file or cause to be
filed the same, with all exhibits thereto and other documents in connection
therewith, with the SEC, granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ RICCARDO PIGLIUCCI President, Chief Executive May 9, 2000
- -------------------------------------------------------- Officer and Director
Riccardo Pigliucci
/s/ JACK FITZPATRICK Chief Financial Officer May 9, 2000
- --------------------------------------------------------
Jack Fitzpatrick
/s/ ANDREW E. SENYEI, M.D. Director May 9, 2000
- --------------------------------------------------------
Andrew E. Senyei, M.D.
/s/ DIETER HOEHN Director May 9, 2000
- --------------------------------------------------------
Dieter Hoehn
/s/ A. GRANT HEIDRICH, III Director May 9, 2000
- --------------------------------------------------------
A. Grant Heidrich, III
/s/ DONALD B. MILDER Director May 9, 2000
- --------------------------------------------------------
Donald B. Milder
</TABLE>
II-8
<PAGE> 124
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ JOHN WALKER Director May 9, 2000
- --------------------------------------------------------
John Walker
/s/ ALAN LEWIS Director May 9, 2000
- --------------------------------------------------------
Alan Lewis
</TABLE>
II-9
<PAGE> 125
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
2.1+ Agreement and Plan of Merger among us DPII Newco, LLC, Axys
Pharmaceuticals, Inc., and Axys Advanced Technologies, Inc.,
dated April 11, 2000.
2.2 Voting Share Purchase Agreement between us and Dr. Heinrich
Zinsli, Dr. Ernst Burgisser, Dr. Helmut Kessmann and
Christoph Grether, dated August 10, 1999.
2.3 Second Closing Protocol between us and Dr. Heinrich Zinsli,
Dr. Ernst Burgisser, Dr. Helmut Kessmann and Christoph
Grether, dated December 23, 1999.
2.4 Non-Voting Share Purchase Agreement between us and Novartis
AG, dated December 23, 1999.
2.5* Stock Purchase Agreement among us, Structural Proteomics,
Inc., Richard Fine and Boris Klebansky, dated May 5, 2000.
3.1 Restated Articles of Incorporation, as amended, in effect in
California prior to the reincorporation.
3.2* Certificate of Incorporation in effect in Delaware after the
reincorporation.
3.3 Bylaws.
3.4* Form of Bylaws to be in effect upon the closing of this
offering.
4.1* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Series E Preferred Stock Purchase Agreement among us and the
investors listed on Schedule A thereto, dated April 7, 2000.
10.2 Second Amended and Restated Investors' Rights Agreement
among us and the investors listed on Schedule A thereto,
dated April 28, 2000.
10.3 Amendment No. 1 to Amended and Restated Shareholders'
Agreement among us and the investors listed on Schedule A
thereto, dated April 28, 2000.
10.4 Amendment No. 3 to Voting Agreement among us and the
investors listed therein, dated April 28, 2000.
10.5* Common Stock Purchase and Asset Contribution Agreement
between Axys Pharmaceuticals, Inc. and Axys Advanced
Technologies, Inc., dated November 17, 1999.
10.6* Technology Assignment and License Agreement between Axys
Pharmaceuticals, Inc. and Axys Advanced Technologies, Inc.,
dated April 28, 2000.
10.7 Non-Competition and Non-Disclosure Agreement between us and
Axys Pharmaceuticals, Inc., dated April 28, 2000.
10.8+ Indemnity Escrow Agreement between us and Axys
Pharmaceuticals, Inc., dated April 28, 2000.
10.9* License Agreement Concerning Shared Space between us and
Axys Pharmaceuticals, Inc., dated April 28, 2000.
10.10 First Amendment to Sublease between Axys Pharmaceuticals,
Inc. and Axys Advanced Technologies, Inc., dated April 28,
2000.
10.11* Compound Supply Agreement between us and Axys
Pharmaceuticals, Inc., dated April 28, 2000.
10.12 Standstill Agreement between us and Axys Pharmaceuticals,
Inc., dated April 28, 2000.
10.13 Shareholders Agreement between us and Dr. Heinrich Zinsli,
Dr. Ernst Burgisser and Dr. Helmut Kessmann, dated August
10, 1999.
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S> <C>
10.14* Rights Agreement between us, Structural Proteomics, Inc.,
Richard Fine, Boris Klebansky and Arnold Hagler, dated March
5, 2000.
10.15 Common Stock Purchase Warrant between us and Enterprise
Partners III, L.P., dated July 18, 1995.
10.16 Warrant Agreement to Purchase Shares of Series A Preferred
Stock between us and Comdisco, Inc., dated February 9, 1996.
10.17 Warrant Agreement to Purchase Shares of Series A Preferred
Stock between us and Comdisco, Inc., dated February 9, 1996.
10.18 Form of Warrant to Purchase Shares of Common Stock between
us and the entities listed on the attached schedule, dated
February 2, 1998.
10.19 Form of Warrant to Purchase Shares of Common Stock between
us and the entities listed on the attached schedule, dated
April 15, 1998.
10.20 Form of Warrant to Purchase Shares of Series A Preferred
Stock between us and the entities listed on the attached
schedule, dated May 20, 1998.
10.21 Warrant to Purchase Common Stock between us and Crosspoint
Venture Partners-1996, dated May 20, 1998.
10.22 Pledge Agreement between us and Riccardo Pigliucci, dated
November 30, 1998.
10.23 Promissory Note issued by Riccardo Pigliucci, dated November
30, 1998.
10.24 Pledge Agreement between us and Riccardo Pigliucci, dated
January 31, 1999.
10.25 Promissory Note issued by Riccardo Pigliucci, dated January
31, 1999.
10.26 Promissory Note and Warrant Purchase Agreement between us
and the investors listed on Exhibit A thereto, dated
December 10, 1999.
10.27 Form of Promissory Note between us and the entities listed
on the attached schedule, dated December 10, 1999.
10.28 Form of Warrant to Purchase Shares of Capital Stock between
us and the entities listed on the attached schedule, dated
December 10, 1999.
10.29 Promissory Note and Warrant Purchase Agreement between us
and Crosspoint Venture Partners LS-1997, dated March 9,
2000.
10.30 Promissory Note between us and Crosspoint Venture Partners
LS-1997, dated March 9, 1999.
10.31 Warrant to Purchase Shares of Capital Stock between us and
Crosspoint Venture Partners LS-1997, dated March 9, 1999.
10.32 Master Lease Agreement between us and Comdisco, Inc., dated
February 9, 1996.
10.33* Master Security Agreement between us and General Electric
Capital Corporation, dated November 1, 1999, as amended.
10.34* Equipment Financing Agreement between us and Lease
Management Services, Inc., dated October 27, 1995, as
amended.
10.35+ Assignment Agreement between us and Ontogen Corporation,
dated December 17, 1998.
10.36 Standby Letter of Credit between us and Bank of America,
dated February 3, 1999.
10.37+ Non-Exclusive Sublicense Agreement between us and Trega
Biosciences, Inc., dated May 1, 1998.
10.38 Indemnification Agreement between us and Sokymat, S.A.,
dated April 19, 1999.
10.39+ Strategic Alliance Agreement between us and Bristol-Myers
Squibb Company, dated May 22, 1998.
10.40+ Strategic Alliance Agreement between us and Aventis
(formerly Rhone-Poulenc Rorer International, Inc.), dated
June 15, 1998.
10.41+ Combinatorial Chemistry Agreement between Axys
Pharmaceuticals, Inc. and Warner-Lambert Company, dated May
15, 1998.
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S> <C>
10.42* Letter Agreement between Discovery Technology, Ltd. and
Basler Kantonalbank, dated December 22, 1999.
10.43 Loan Agreement between Discovery Technology, Ltd. and
Novartis International AG, dated December 23, 1999.
10.44 Guaranty between us and Novartis International AG, dated
December 23, 1999.
10.45 Industrial Lease between Irvine Company and us, dated
February 17, 1999.
10.46 IRORI (Europe) Limited Lease of Unit 5, dated December 22,
1997.
10.47* Leasehold Contract between Basler Kantonalbank and Discovery
Technology, Ltd., dated June 20, 1997 (English version).
10.48* Leasehold Contract between Basler Kantonalbank and Discovery
Technology, Ltd., dated June 20, 1997 (German version).
10.49 Directorship Agreement between us and Dieter Hoehn, dated
December 15, 1996.
10.50* Letter Agreement terminating Directorship Agreement with
Dieter Hoehn, dated May 8, 2000.
10.51++ Key Employment Agreement between us and Riccardo Pigliucci,
dated April 17, 1998.
10.52 1995 Stock Option/Stock Issuance Plan, as amended.
10.53 1995 Stock Option/Stock Issuance Plan, Form of Notice of
Grant.
10.54 1995 Stock Option Plan/Stock Issuance Plan, Form of Stock
Option Agreement.
10.55 1995 Stock Option Plan, Form of Stock Purchase Agreement.
10.56* 1995 Stock Option/Stock Issuance Plan, Form of Bonus Stock
Issuance Agreement.
10.57 Axys Advanced Technologies, Inc. 1999 Equity Incentive Plan.
10.58 Axys Advanced Technologies, Inc. 1999 Equity Incentive Plan,
Form of Stock Option Agreement.
10.59* 2000 Stock Incentive Plan.
10.60* 2000 Stock Incentive Plan, Form of Notice of Grant.
10.61* 2000 Stock Incentive Plan, Form of Stock Option Agreement.
10.62* 2000 Stock Incentive Plan, Form of Stock Purchase Agreement.
10.63* 2000 Stock Incentive Plan, Form of Stock Issuance Agreement.
10.64* 2000 Employee Stock Purchase Plan.
10.65 Form of Indemnification Agreement between us and each of our
directors and officers.
10.66++ Employment Contract between us and Dr. Heinrich Zinsli,
dated August 10, 1999.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young, LLP, independent auditors.
23.2 Consent of Ernst & Young, LLP, independent auditors.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page on Page II-8).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.
++ Management compensation agreement.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DISCOVERY PARTNERS INTERNATIONAL, INC.,
DPII NEWCO, LLC,
AXYS ADVANCED TECHNOLOGIES, INC.
AND
AXYS PHARMACEUTICALS, INC.
DATED APRIL 11, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
Article I DEFINITIONS....................................................................... 1
1.1 Defined Terms................................................................ 1
1.2 Construction of Certain Terms and Phrases.................................... 10
Article II MERGER; CLOSING.................................................................. 10
2.1 The Merger................................................................... 10
2.2 Effective Time............................................................... 10
2.3 Certificate of Incorporation................................................. 10
2.4 Bylaws....................................................................... 11
2.5 Directors.................................................................... 11
2.6 Officers..................................................................... 11
2.7 Conversion of Stock.......................................................... 11
2.8 Exchange of Company Shares and Mergersub Shares in the Merger................ 12
2.9 Options and Warrants......................................................... 12
2.10 Dissenting Shares............................................................ 13
2.11 Contribution of Assets by Axys............................................... 13
2.12 Intentionally Left Blank .................................................... 13
2.13 Intentionally Left Blank..................................................... 13
2.14 Closing...................................................................... 13
2.15 Further Assurances........................................................... 16
Article III REPRESENTATIONS AND WARRANTIES OF AXYS.......................................... 17
3.1 Organization of the Company.................................................. 17
3.2 Capital Stock of the Company................................................. 17
3.3 Ownership of Shares.......................................................... 17
3.4 Authority of Axys............................................................ 17
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
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3.5 Authority of the Company..................................................... 18
3.6 No Conflicts................................................................. 18
3.7 Consents and Governmental Approvals and Filings.............................. 19
3.8 Books and Records............................................................ 19
3.9 Financial Statements......................................................... 19
3.10 Absence of Changes........................................................... 20
3.11 No Undisclosed Liabilities................................................... 20
3.12 Tangible Personal Property................................................... 20
3.13 Benefit Plans; ERISA......................................................... 20
3.14 Real Property................................................................ 21
3.15 Intellectual Property Rights................................................. 22
3.16 Proprietary Information of Third Parties..................................... 24
3.17 Litigation................................................................... 24
3.18 Compliance with Law.......................................................... 24
3.19 Contracts.................................................................... 25
3.20 Environmental Matters........................................................ 26
3.21 Inventory.................................................................... 28
3.22 Plants, Buildings, Structures, Facilities and Equipment...................... 28
3.23 Insurance.................................................................... 28
3.24 Taxes........................................................................ 29
3.25 Labor and Employment Relations............................................... 31
3.26 Certain Employees............................................................ 31
3.27 Absence of Certain Changes................................................... 32
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
3.28 Customers/Supplier........................................................... 34
3.29 Necessary Property........................................................... 34
3.30 Bank Accounts................................................................ 34
3.31 Permits...................................................................... 35
3.32 Brokers...................................................................... 35
3.33 Year 2000 Compliance......................................................... 35
3.34 Insider Interests and Affiliate Transactions................................. 36
3.35 Material Misstatements and Omissions......................................... 36
3.36 Investment Intent............................................................ 36
Article IV REPRESENTATIONS AND WARRANTIES OF DPII........................................... 36
4.1 Organization of the Company.................................................. 37
4.2 Capital Stock of DPII........................................................ 37
4.3 [RESERVED]................................................................... 37
4.4 [RESERVED]................................................................... 37
4.5 Authority of DPII............................................................ 37
4.6 No Conflicts................................................................. 38
4.7 Consents and Governmental Approvals and Filings.............................. 38
4.8 Books and Records............................................................ 38
4.9 DPII Financial Statements.................................................... 39
4.10 Absence of Changes........................................................... 39
4.11 No Undisclosed Liabilities................................................... 39
4.12 Tangible Personal Property................................................... 40
4.13 Benefit Plans; ERISA......................................................... 40
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
4.14 Real Property................................................................ 41
4.15 Intellectual Property Rights................................................. 41
4.16 Proprietary Information of Third Parties..................................... 43
4.17 Litigation................................................................... 43
4.18 Compliance with Law.......................................................... 44
4.19 Contracts.................................................................... 44
4.20 Environmental Matters........................................................ 45
4.21 Inventory.................................................................... 46
4.22 Plants, Buildings, Structures, Facilities and Equipment...................... 47
4.23 Insurance.................................................................... 47
4.24 Taxes........................................................................ 47
4.25 Labor and Employment Relations............................................... 49
4.26 Certain Employees............................................................ 50
4.27 Absence of Certain Changes................................................... 50
4.28 Customers/Supplier........................................................... 52
4.29 Necessary Property........................................................... 52
4.30 [reserved]................................................................... 52
4.31 Permits...................................................................... 52
4.32 Brokers...................................................................... 53
4.33 Year 2000 Compliance......................................................... 53
4.34 Insider Interests and Affiliate Transactions................................. 53
4.35 Material Misstatements and Omissions......................................... 53
4.36 Investment Intent............................................................ 54
</TABLE>
iv
<PAGE> 6
TABLE OF CONTENTS
(Continued)
<TABLE>
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<S> <C>
Article V CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND AXYS............................. 54
5.1 Representations, Warranties and Covenants.................................... 54
5.2 No Proceedings............................................................... 54
5.3 Consents..................................................................... 54
5.4 Closing Deliveries........................................................... 54
Article VI CONDITIONS TO THE OBLIGATIONS OF DPII AND MERGERSUB.............................. 54
6.1 Representations, Warranties and Covenants.................................... 55
6.2 No Proceedings............................................................... 55
6.3 Consents..................................................................... 55
6.4 Closing Deliveries........................................................... 55
Article VII COVENANTS OF THE PARTIES........................................................ 55
7.1 Covenants by Axys and DPII................................................... 55
7.2 Covenants of the Company and Axys............................................ 58
7.3 Covenants of DPII............................................................ 61
7.4 Covenants of DPII and Mergersub.............................................. 63
Article VIII ACTIONS BY THE PARTIES AFTER THE CLOSING....................................... 64
8.1 Survival of Representations, Warranties, Etc................................. 64
8.2 Indemnification.............................................................. 64
8.3 [reserved]................................................................... 69
8.4 Further Assurances........................................................... 69
8.5 Audited Financials .......................................................... 69
8.6 Payments Received............................................................ 70
Article IX CERTAIN TAX MATTERS.............................................................. 70
</TABLE>
v
<PAGE> 7
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
9.1 Not Tax Free................................................................. 70
9.2 Allocation of Merger Consideration........................................... 70
9.3 Forms........................................................................ 70
9.4 Modification; Revocation..................................................... 71
9.5 Consistent Treatment......................................................... 71
9.6 Expenses Resulting from Section 338(h)(10) Elections......................... 71
9.7 Tax Sharing Agreements....................................................... 71
9.8 Tax Indemnity................................................................ 71
9.9 Mutual Cooperation........................................................... 73
9.10 Contests..................................................................... 73
9.11 Resolution of Disagreements Between Axys and DPII............................ 73
9.12 Survival of Obligations...................................................... 74
Article X MISCELLANEOUS..................................................................... 74
10.1 Termination.................................................................. 74
10.2 Notices...................................................................... 75
10.3 Entire Agreement............................................................. 76
10.4 Waiver....................................................................... 76
10.5 Amendment.................................................................... 76
10.6 No Third Party Beneficiary................................................... 76
10.7 No Assignment; Binding Effect................................................ 76
10.8 Headings..................................................................... 77
10.9 Severability................................................................. 77
10.10 Governing Law................................................................ 77
</TABLE>
VI
<PAGE> 8
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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10.11 Consent to Jurisdiction and Forum Selection.................................. 77
10.12 Expenses..................................................................... 78
10.13 Construction................................................................. 78
10.14 Counterparts................................................................. 78
</TABLE>
EXHIBITS
Exhibit A - Certificate of Incorporation
Exhibit B - Note
Exhibit C - Axys and Company Officer's Certificate
Exhibit D - DPII Officer's Certificate
vii
<PAGE> 9
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made and entered into
as of April 11, 2000, by and among Discovery Partners International, Inc., a
California corporation ("DPII"), DPII Newco, LLC, a Delaware limited liability
company and a wholly-owned subsidiary of DPII ("Mergersub"), Axys Advanced
Technologies, Inc., a Delaware corporation (the "Company"), and Axys
Pharmaceuticals, Inc., a Delaware corporation ("Axys").
RECITALS
WHEREAS, the Company and Axys are engaged in the combinatorial chemistry
business, including the design, production and sale of compounds and libraries
produced through combinatorial chemistry methods and various activities in
connection with such business (the "Business");
WHEREAS, DPII owns all of the issued and outstanding member interests of
Mergersub consisting of 1,000 "shares" (the "Mergersub Stock");
WHEREAS, Axys owns 10,000,000 shares (the "Axys AAT Stock") out of the
10,006,250 shares of issued and outstanding common stock of the Company, $0.001
par value per share, which is the sole class of Company capital stock (the
"Company Stock");
WHEREAS, the Boards of Directors of Axys, the Company, DPII and
Mergersub each have determined that it is in the best interests of their
respective shareholders for Mergersub to merge (the "Merger") with and into the
Company upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following defined
terms have the meanings indicated below:
"AFFILIATE" means, with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person.
"AFFILIATED GROUP" has the meaning set forth in Section 3.24(h).
"AGREEMENT" has the meaning set forth in the preamble hereto.
<PAGE> 10
"AKKADIX CLAIMS" has the meaning set forth in Section 8.2(a).
"ASSETS AND PROPERTIES" and "ASSETS OR PROPERTIES" of any Person each
means all assets and properties of every kind, nature, character and description
(whether real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever situated),
including the goodwill related thereto, owned or leased by such Person,
including, without limitation, cash, cash equivalents, accounts and notes
receivable, chattel paper, documents, contract rights, instruments, general
intangibles, real estate, equipment, inventory, goods and Intellectual Property.
"AXYS" has the meaning set forth in the preamble hereto.
"AXYS AAT STOCK" has the meaning set forth in the third recital of this
Agreement.
"AXYS GROUP" has the meaning set forth in Section 8.2(b).
"BENEFIT PLAN" means any Plan established, arranged or maintained by the
Company or any corporate group of which the Company is or was a member, existing
at the Closing Date or prior thereto, to which the Company contributes or has
contributed, or under which any employee, officer, director or former employee,
officer or director of the Company or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.
"BOOKS AND RECORDS" of any Person means all files, documents,
instruments, papers, books, accounts, ledgers, other financial information,
computer files (including but not limited to files stored on a computer's hard
drive or on floppy disks), electronic files and records in any other medium
relating to the business, operations or condition of such Person.
"BUSINESS" has the meaning set forth in the first recital of this
Agreement.
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the State of California or New York are authorized or
obligated to close.
"BYLAWS" has the meaning set forth in Section 2.4.
"CASH" has the meaning set forth in Section 2.7(b).
"CERTIFICATE OF INCORPORATION" has the meaning set forth in Section 2.3.
"CLOSING" has the meaning set forth in Section 2.14(a).
"CLOSING DATE" has the meaning set forth in Section 2.14(a).
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COMPANY" has the meaning set forth in the preamble hereto.
2
<PAGE> 11
"COMPANY ASSETS AND PROPERTIES" and "COMPANY ASSETS OR PROPERTIES" means
all Assets and Properties that are used, held for use or presently contemplated
for use in the Business by the Company or Axys or any of its Affiliates, and are
owned or leased by the Company or Axys or any of its Affiliates, including,
without limitation, (i) all business plans, lists of customers and leads,
employee evaluations, laboratory notebooks and other Intellectual Property and
Confidential Information relating to the Business; (ii) all fixed assets, "on
hand" assets that have been expensed under the Company's policies (hand tools,
etc.), and leasehold improvements that are currently used by Company personnel
relating to the Business; (iii) all chemical compound inventory and other
inventory held by the Company or any Affiliate as of the Closing relating to the
Business; (iv) any prepaid revenue relating to the Business; and (v) those
patents and patent applications set forth on the Disclosure Schedule.
"COMPANY INTELLECTUAL PROPERTY" means any Intellectual Property relating
to the Company and the Business that is owned by or licensed to the Company or
Axys or any of its Affiliates relating to the Business.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 3.15(a).
"COMPANY SHARES" has the meaning set forth in Section 2.7(b).
"COMPANY STOCK" has the meaning set forth in the third recital of this
Agreement.
"COMPOUND SUPPLY AGREEMENT" has the meaning set forth in Section
2.14(b)(vii).
"COMPUTER SYSTEMS" shall have the meaning set forth in Section 3.33.
"CONFIDENTIAL INFORMATION" means all of the following (whether or not
reduced to writing and whether or not patentable or protected by copyright): (i)
any and all trade secrets concerning the business and affairs of a Person,
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current and planned research and development, current and planned
manufacturing and distribution methods and processes, customer lists, current
and anticipated customer requirements, price lists, market studies, business
plans, compounds, strains, molecules, proteins, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures and architectures (and related processes,
formulae, compositions, improvements, derivatives, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and information) of a
Person and any other information, however, documented, of a Person that is a
trade secret within the meaning of any and all applicable state and federal
trade secret laws; (ii) any and all information concerning the business and
affairs of a Person (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and
3
<PAGE> 12
other material prepared by or for a Person containing or based, in whole or in
part, on any information included in the foregoing.
"CONSULTATION NOTICE" has the meaning set forth in Section 9.11.
"CONTRIBUTION AGREEMENT" has the meaning set forth in Section 2.11.
"DAMAGES" has the meaning set forth in Section 8.2(a).
"DATE DATA" has the meaning set forth in Section 3.33.
"DEFINED BENEFIT PLAN" means each Benefit Plan which is subject to Part
3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"DGCL" has the meaning set forth in Section 2.1.
"DISCLOSURE SCHEDULE" means the disclosure schedule which sets forth the
exceptions to the representations and warranties contained in Article III hereof
and certain other information called for by this Agreement delivered to DPII no
later than the day of the signing of the Agreement.
"DISSENTING SHARES" has the meaning set forth in Section 2.10.
"DPII" has the meaning set forth in the preamble hereto.
"DPII ASSETS AND PROPERTIES" means Assets and Properties that are used,
held for use or presently contemplated for use in or related to the DPII
Business by DPII or any of its Affiliates, that are owned or leased by DPII or
any of its Affiliates, including, without limitation, all business plans, lists
of customers and leads, employee evaluations, laboratory notebooks and other
Intellectual Property and Confidential Information relating to the DPII
Business.
"DPII BUSINESS" means all business operations of DPII.
"DPII DISCLOSURE SCHEDULE" means the disclosure schedule which sets
forth the exceptions to the representations and warranties contained in Article
IV hereof and certain other information called for by this Agreement delivered
to Axys no later than the day of the signing of the Agreement.
"DPII EMPLOYEE LETTER" has the meaning set forth in Section 4.26.
"DPII ENVIRONMENTAL PERMITS" has the meaning set forth in Section
4.20(a).
"DPII FINANCIAL STATEMENTS" means (i) the audited statements of income
of DPII for the fiscal years ended December 31, 1998 and December 31, 1999, (ii)
the unaudited statement of income of DPII for the three-month period ended March
31, 2000, and (iii) the Interim DPII Balance Sheet (as defined below).
4
<PAGE> 13
"DPII GROUP" has the meaning set forth in Section 8.2(a).
"DPII INTELLECTUAL PROPERTY" means Intellectual Property (as defined
below) owned or licensed in DPII).
"DPII MATERIAL CONTRACT" has the meaning set forth in Section 4.19(a).
"DPII REAL PROPERTY" has the meaning set forth in Section 4.14.
"DPII REGISTERED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 4.15(a).
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"ELECTION FORMS" has the meaning set forth in Section 9.3.
"EMPLOYEE LETTER" has the meaning set forth in Section 3.26.
"ENCUMBRANCES" means any mortgage, pledge, assessment, security
interest, deed of trust, lease, lien, adverse claim, levy, charge or other
encumbrance of any kind, or any conditional sale or title retention agreement or
other agreement to give any of the foregoing in the future.
"ENVIRONMENT" has the meaning set forth in Section 3.20(g)(i).
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 3.20(g)(iii).
"ENVIRONMENTAL NOTICE" has the meaning set forth in Section 3.20(g)(ii).
"ENVIRONMENTAL PERMITS" has the meaning set forth in Section 3.20(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any entity which is a member of a "controlled
group of corporations" or which is or was under "common control" with the
Company as defined in Section 414 of the Code.
"ESTOPPEL CERTIFICATE" has the meaning set forth in Section
2.14(b)(viii).
"FACILITIES AGREEMENT" has the meaning set forth in Section 2.14(b)(v).
"FINAL ALLOCATION" has the meaning set forth in Section 9.2.
"FINANCIAL STATEMENTS" means (i) the quarterly unaudited statements of
income of the Business for the fiscal quarters ended March 31, June 30,
September 30 and December 31, 1998 and the quarterly unaudited statements of
income of the Business for the fiscal quarters ended
5
<PAGE> 14
March 31, June 30, September 30, and December 31, 1999, and the three-month
period ended March 31, 2000, and (ii) the Interim Balance Sheet (as defined
below) for the Company.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or other country, any state, county, city or other political
subdivision.
"IRS" means the United States Internal Revenue Service, or any successor
agency.
"INDEMNITY ESCROW AGREEMENT" has the meaning set forth in Section
2.14(b)(iv).
"INDEMNITY ESCROW AMOUNT" has the meaning set forth in Section
2.14(c)(ii).
"INTELLECTUAL PROPERTY" means (i) inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof; (ii) trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith, copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith; (iii) trade secrets and
confidential business information (including product specifications, data,
know-how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current and planned
research and development, current and planned research and distribution
methodologies and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans), however documented;
(iv) proprietary computer software and programs (including object code and
source code) and other proprietary rights and copies and tangible embodiments
thereof (in whatever form or medium); (v) database technologies, systems,
structures and architectures (and related processes, formulae, compositions,
improvements, devices, know-how, inventions, discoveries, concepts, ideas,
designs, methods and information) and any other related information, however,
documented; (vi) all industrial designs and any registrations and applications
therefor; (vii) all databases and data collections and all rights therein; and
(viii) any similar or equivalent rights to any of the foregoing anywhere in the
world.
"INTERIM BALANCE SHEET" means the unaudited balance sheet of the Company
as of March 31, 2000.
"INTERIM DPII BALANCE SHEET" means the unaudited balance sheet of DPII
as of March 31, 2000.
"INTERIM PERIOD" has the meaning set forth in Section 9.8(a).
6
<PAGE> 15
"INVESTORS' RIGHTS AGREEMENT AMENDMENT" has the meaning set forth in
Section 2.14(b)(ix).
"KNOWLEDGE OF AXYS AND/OR THE COMPANY" or "KNOWN TO AXYS AND/OR THE
COMPANY" or any similar phrase or construction means the knowledge of John
Walker, Bill Newell, Kathy Stafford, Dan Hoth, Mike Venuti or Bob Reed.
"KNOWLEDGE OF DPII or "KNOWN TO DPII" or any similar phrase or
construction means the knowledge of Riccardo Pigliucci, Jack Fitzpatrick, Rick
Brown, David Coffen or John Lillig.
"LIABILITIES" means any liability (whether known or unknown, whether
asserted, or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including but not limited to any liability for Taxes (as defined below).
"LICENSE AGREEMENT" has the meaning set forth in Section 2.11.
"MATERIAL" has the meaning set forth in Section 3.20(g)(iv).
"MATERIAL ADVERSE EFFECT" means, for any Person, a material adverse
effect whether individually or in the aggregate (a) on the business, operations,
financial condition, Assets and Properties, Liabilities or prospects of such
Person, or (b) on the ability of such Person to consummate the transactions
contemplated hereby.
"MATERIAL CONTRACTS" has the meaning set forth in Section 3.19(a).
"MATERIALITY TERMS" has the meaning set forth in Section 8.2(e)(iv).
"MERGER" has the meaning set forth in the fourth recital hereto.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.7(b).
"MERGERSUB" has the meaning set forth in the preamble hereto.
"MERGERSUB SHARES" has the meaning set forth in Section 2.7(a).
"MERGERSUB STOCK" has the meaning set forth in the second recital
hereto.
"NON-COMPETITION AGREEMENT" has the meaning set forth in Section
2.14(b)(ii) .
"NOTE" has the meaning set forth in Section 2.7(b).
"ORDER" means any writ, judgment, decree, injunction or similar order of
any Governmental or Regulatory Authority (in each such case whether preliminary
or final).
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"ORDINARY COURSE OF BUSINESS" means the action of a Person that is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.
"PERMITS" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations and similar consents granted or issued
by any Governmental or Regulatory Authority.
"PERMITTED ENCUMBRANCE" means (a) any Encumbrance for Taxes not yet due
or delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (b) any
minor imperfection of title or similar Encumbrance which individually or in the
aggregate with other such Encumbrances does not materially impair the value of
the property subject to such Encumbrance or the use of such property in the
conduct of the Business and (c) zoning and other land use restrictions that do
not impair the value of the property or the use thereof.
"PERSON" means any natural person, corporation, general partnership,
limited partnership, limited liability company, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.
"PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workers' compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA, and any employment,
severance, consulting or other similar arrangement entered into between the
Company or any ERISA Affiliate and any director or employee or former director
or employee of the Company in his capacity as such.
"PRE-CLOSING PERIODS" has the meaning set forth in Section 9.8(a).
"PROCEEDING" means any action, suit, proceeding, claims arbitration,
Order (as defined above), inquiry, hearing, assessment with respect to fines or
penalties or litigation (whether civil, criminal, administrative, investigative
or informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental or Regulatory Authority (as defined above).
"QUALIFIED PLAN" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.
"REAL PROPERTY" has the meaning set forth in Section 3.14.
"SECTION 338(h)(10) ELECTION" has the meaning set forth in Section 9.1.
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<PAGE> 17
"SHAREHOLDERS' AGREEMENT AMENDMENT" has the meaning set forth in Section
2.14(b)(x).
"STANDSTILL AGREEMENT" has the meaning set forth in Section
2.14(b)(xii).
"STRADDLE PERIOD" has the meaning set forth in Section 9.8(a).
"SUBLEASE" has the meaning set forth in Section 2.14(b)(vi).
"SURVIVING CORPORATION" has the meaning set forth in Section 2.1.
"SURVIVING CORPORATION STOCK" has the meaning set forth in Section 2.3.
"TAX" and "TAXES" mean (i) any federal, state, local or foreign income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by the
Taxing Authority responsible for the imposition of any such tax, (ii) any
Liability for payment of any amounts of the type described in clause (i) as a
result of being or having been at any time a member of an affiliated,
consolidated, combined, unitary or other group for any taxable period and (iii)
any Liability for the payment of any amounts of the type described in clause (i)
or (ii) as a result of any express or implied obligation to indemnify any other
Person.
"TAX RETURN" means any return, report, information return, claim for
refund, schedule, statement or other document (including any related or
supporting information) filed or required to be filed with respect to any Taxing
Authority in connection with the determination, assessment or collection of any
Tax (whether or not such Tax is imposed on the Company or any of its
subsidiaries) or the administration of any laws, regulations or administrative
requirements relating to any Tax, or any statement required to be furnished to
any Person under any Tax law.
"TAXING AUTHORITY" means any Governmental or Regulatory Authority
exercising any authority to impose, regulate or administer the imposition of
Taxes.
"THRESHOLD AMOUNT" has the meaning set forth in Section 8.2(e)(i);
"TREASURY REGULATIONS" means the income tax regulations promulgated
under the Code.
"VOTING AGREEMENT AMENDMENT" has the meaning set forth in Section
2.14(b)(xi).
"YEAR 2000 COMPLIANCE" has the meaning set forth in Section 3.33.
"YEAR 2000 COMPLIANT" has the meaning set forth in Section 3.33.
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<PAGE> 18
1.2 Construction of Certain Terms and Phrases.
Unless the context of this Agreement otherwise requires, (a) words of
any gender include each other gender; (b) words using the singular or plural
number also include the plural or singular number, respectively; (c) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement; (d) the terms "Article" or "Section" refer to the specified
Article or Section of this Agreement; (e) the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase "and/or";
and (f) "including" means "including without limitation." Whenever this
Agreement refers to a number of days, such number shall refer to calendar days
unless Business Days are specified. All accounting terms used herein and not
expressly defined herein shall have the meanings given to them under GAAP.
ARTICLE II
MERGER; CLOSING
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 2.2), Mergersub and the Company
shall consummate the Merger in which (a) Mergersub shall be merged with and into
the Company and the separate limited liability company existence of Mergersub
shall thereupon cease, (b) the Company shall be the successor or surviving
corporation in the Merger and shall continue to be governed by the laws of the
State of Delaware and (c) the separate corporate existence of the Company with
all its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The corporation surviving the Merger is sometimes
hereinafter referred to as the "Surviving Corporation." The Merger shall have
the effects set forth in the General Corporation Law of the State of Delaware
(the "DGCL").
2.2 Effective Time. Mergersub and the Company will file a certificate of
merger on the date of the Closing (or on such other date as Mergersub and the
Company may agree in writing) with the Secretary of State of the State of
Delaware as provided in the DGCL, and shall make all other filings or recordings
required by the DGCL in connection with the Merger. The Merger shall become
effective at such time as the certificate of merger is duly filed with the
Secretary of State of the State of Delaware or such later time as is specified
in the certificate of merger, and such time is hereinafter referred to as the
"Effective Time."
2.3 Certificate of Incorporation. The Certificate of Incorporation of
the Company, in effect immediately prior to the Effective Time, shall be amended
and restated to read as of the Effective Time as set forth in Exhibit A attached
hereto (the "Certificate of Incorporation"), and, as so amended and restated,
shall be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with applicable law. The Certificate of Incorporation
shall provide that the authorized capital stock of the Surviving Corporation
shall consist of 1,000 shares of common stock, par value $0.001 per share
("Surviving Corporation Stock").
2.4 Bylaws. The Bylaws of the Company, in effect immediately prior to
the Effective
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Time, shall be the Bylaws of the Surviving Corporation until amended in
accordance with applicable law.
2.5 Directors. The directors of the Company shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
2.6 Officers. The officers of the Company shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
2.7 Conversion of Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of the Company, DPII or Mergersub or the
holders of any outstanding shares of capital stock of the Company or the holders
of any outstanding member interests of Mergersub:
(a) Each "share" of Mergersub Stock ("Mergersub Shares"), issued
and outstanding immediately prior to the Effective Time shall be converted into
the right to receive one newly issued share of Surviving Corporation Stock.
(b) Except as provided pursuant to Section 2.10 and subject to
Section 2.7(c), each share of Company Stock ("Company Shares") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive the Merger Consideration (as defined below), payable to the
holder thereof, without interest, upon surrender of the certificate formerly
representing such share of Company Stock in the manner provided in Section 2.8
hereof. All such shares of Company Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.8 hereof, without interest, or to perfect any rights of appraisal as a
holder of Dissenting Shares (as hereinafter defined) that such holder may have
pursuant to Section 262 of the DGCL. "Merger Consideration" shall mean (i)
0.7425 shares of DPII Common Stock, (ii) a promissory note, in the form of
Exhibit B attached hereto (a "Note") with a principal amount equal to $0.055 per
Company Share, and (iii) cash in an amount equal to $0.005 per Company Share
(the "Cash").
(c) At the Effective Time, each share of capital stock of the
Company held in treasury of the Company shall be cancelled and retired without
payment of any consideration therefor and cease to exist.
2.8 Exchange of Company Shares and Mergersub Shares in the Merger. The
manner of making exchange of Company Shares and Mergersub Shares in the Merger
shall be as follows: At the Effective Time, the Surviving Corporation shall make
available for the benefit of
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DPII a certificate representing the aggregate number of Surviving Corporation
Shares issuable pursuant to Section 2.7(a). DPII shall be entitled to receive
for each of the Mergersub Shares one share of Surviving Corporation Common
Stock. At the Effective Time, Mergersub (or DPII on behalf of Mergersub) shall
make available for the benefit of the holders of the Company Shares the Merger
Consideration applicable to the Company Shares upon surrender of certificates
formerly representing Company Shares. Upon surrender of certificates formerly
representing Company Shares for cancellation to the Surviving Corporation, the
holder of such certificate shall be entitled to receive for each of the Company
Shares represented by such certificate, the Merger Consideration and the
certificates so surrendered shall forthwith be cancelled. Until so surrendered,
such certificates shall represent solely the right to receive the Merger
Consideration with respect to each of the Company Shares represented thereby. In
the event that any certificate has been lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed
certificate, promptly following the Surviving Corporation's receipt of an
affidavit as to that fact in form and substance acceptable to the Surviving
Corporation made by the registered owner of the shares represented by such
certificate, as shown on the Company's stock records immediately before the
Effective Time, the consideration to which such registered owner would be
entitled to receive pursuant to Section 2.7; provided, however, that the
Surviving Corporation shall, as a condition precedent to the delivery of such
consideration require such registered owner of such lost, stolen or destroyed
certificate(s) to execute a customary indemnification agreement and/or post an
indemnity bond against any claim that may be made against the Surviving
Corporation with respect to the certificate(s) alleged to have been lost, stolen
or destroyed.
2.9 Options and Warrants. Each unexpired and unexercised option or right
to purchase Company Stock issued and outstanding at the Effective Time and set
forth in Section 2.9 of the Disclosure Schedule (such schedule to be updated at
Closing to reflect the addition of new employee Company Stock options offered in
accordance with Section 7.2(a)(xiv) after the date hereof), whether or not then
exercisable, shall be assumed by DPII, and shall become an option to purchase
shares of DPII Common Stock, subject to adjustment as follows: (a) the number of
shares of DPII Common Stock, for which such option or right is exercisable
immediately after the Merger shall be equal to the number of shares of Company
Stock for which such option or right is exercisable immediately prior to the
Merger, multiplied by 0.75, rounded down to the nearest whole share, and (b) the
exercisable price per share of DPII Common Stock for which such option or right
is exercisable immediately after the Merger shall be equal to the exercise price
per share of Company Stock for which such option or right is exercisable
immediately prior to the Merger, divided by 0.75, rounded up to the newest whole
cent. The parties hereto acknowledge that (i) after such assumption, the power
of each holder of such an option or right, to purchase Company Stock of the
Company by exercising such options or rights is terminated and (ii) DPII shall
have no obligation to continue the employment of any of the Company's employees
after the Closing. Axys shall cause any other derivative securities, options,
warrants or other rights to acquire any Company capital stock to be terminated
before the Closing.
2.10 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Company Shares outstanding immediately prior to the Effective Time
and held by a holder (other than Axys or any of its Affiliates) who has not
voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Company Shares in accordance with the DGCL
("Dissenting Shares") shall not be converted into a right to receive the Merger
Consideration, but such holder shall be entitled to receive such consideration
as shall be
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determined pursuant to the DGCL; provided, however, that if, after the Effective
Time, such holder fails to perfect or withdraws or loses his right to appraisal,
such Company Shares shall be treated as if they had converted as of the
Effective Time into a right to receive the Merger Consideration, without
interest thereon and such shares shall no longer be Dissenting Shares. Axys (on
behalf of itself and its Affiliates) hereby consents to and approves the Merger
and waives any and all rights to dissent from the Merger and demand appraisal
for its Company Shares.
2.11 Contribution of Assets by Axys. Prior to the Closing Date, Axys has
either contributed or agrees to, and cause its Affiliates to, contribute (by
assignment or license, as applicable) all Company Assets and Properties held by
Axys or any Affiliate of Axys (other than the Company) to the Company pursuant
to the Common Stock Purchase and Asset Contribution Agreement dated November 17,
1999, by and between Axys and the Company, previously delivered to DPII (the
"Contribution Agreement"), and a Technology Assignment and License Agreement by
and between Axys and the Company, in the form to be mutually agreed to by DPII
and Axys and the Company (the "License Agreement").
2.12 Intentionally Left Blank.
2.13 Intentionally Left Blank.
2.14 Closing.
(a) Time and Place. The consummation of the Merger and the
transactions contemplated hereby (the "Closing") shall take place at the offices
of Brobeck Phleger & Harrison LLP, 12390 El Camino Real, San Diego, California,
at 10:00 a.m. on April 21, 2000, or at such time and in such manner as the
parties mutually agree (the "Closing Date").
(b) Closing Deliveries by the Company and Axys. At the Closing, the
Company and Axys shall have delivered or caused to be delivered to DPII:
(i) the certificate of merger as filed by the Company as
provided in Section 2.2.
(ii) the original stock certificates representing the Axys
AAT Shares in appropriate form for surrender to the Surviving Corporation;
(iii) the Non-Competition and Non-Disclosure Agreement by
and between DPII and Axys, in the form mutually agreed to by DPII and Axys (the
"Non-Competition Agreement"), duly executed by Axys;
(iv) the Indemnity Escrow Agreement by and among DPII, Axys
and the escrow agent, in the form mutually agreed to by DPII and Axys (the
"Indemnity Escrow Agreement"), duly executed by Axys;
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<PAGE> 22
(v) the fully executed Contribution Agreement and the fully
executed License Agreement;
(vi) the License Agreement Concerning Shared Space and
between DPII and Axys, in the form mutually agreed to by DPII and Axys (the
"Facilities Agreement"), duly executed by Axys;
(vii) the fully executed Amendment to Sublease Agreement
between Axys and the Company, in the form mutually agreed to by DPII and Axys
and the Company (the "Sublease Amendment");
(viii) the Compound Supply Agreement by and between DPII and
Axys, in the form mutually agreed to by DPII and Axys (the "Compound Supply
Agreement"), duly executed by Axys;
(ix) the amended and restated Investors' Rights Agreement by
and among DPII, Axys and others, in the form mutually agreed to by DPII and Axys
(the "Investors' Rights Agreement Amendment"), duly executed by Axys;
(x) the amended and restated Shareholders' Agreement by and
among DPII, Axys and others, in the form mutually agreed to by DPII and Axys
(the "Shareholders Agreement Amendment"), duly executed by Axys;
(xi) the amended and restated Voting Agreement by and among
DPII, Axys and others, in the form mutually agreed to by DPII and Axys (the
"Voting Agreement Amendment"), duly executed by Axys;
(xii) the Standstill Agreement by and between Axys and DPII,
in the form mutually agreed to by Axys and DPII (the "Standstill Agreement"),
duly executed by Axys;
(xiii) the Estoppel Certificate and Consent to Assignment by
the landlord or landlords, as the case may be, of the Real Property, in the form
mutually agreed to by DPII and Axys, duly executed by such landlord(s);
(xiv) a certificate of an officer of the Company and of
Axys, respectively, substantially in the form of Exhibit C attached hereto, duly
executed by each of the Company and Axys;
(xv) certificates of the Secretary of the Company and Axys,
respectively, certifying as of the Closing Date (A) a true and complete copy of
the organizational documents of the Company or Axys, as the case may be,
certified as of a recent date by the Secretary of State of Delaware, (B) a true
and complete copy of the resolutions of the board of directors of the Company
and Axys, respectively, and the resolutions of the stockholders of the Company,
each authorizing the execution, delivery and performance of this Agreement by
Axys and the Company and the consummation of the transactions contemplated
hereby (C) a
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certificate of each appropriate Secretary of State certifying the good standing
of each of Axys and the Company in its state of incorporation or organization
and, with respect to the Company, all states in which such corporation is
qualified to do business and (D) incumbency matters;
(xvi) an affidavit under Section 1445(b)(2) of the Code that
will exempt the payment of the Merger Consideration contemplated by this
Agreement from withholding under Section 1445 of the Code;
(xvii) all documents evidencing the contribution of Company
Assets and Properties by Axys and its Affiliates pursuant to Section 2.11 or
Section 7.1(g) in form and substance reasonably satisfactory to DPII; and
(xviii)such other documents as DPII may reasonably request
for the purpose of facilitating the consummation of the transactions
contemplated herein.
(c) Closing Deliveries By DPII and Mergersub. At the Closing, DPII
and Mergersub shall have delivered or caused to be delivered to (or for the
benefit of) Axys:
(i) the Cash, a Note and stock certificate representing the
Merger Consideration that Axys shall be entitled to receive pursuant to Section
2.7(b) and Section 2.8, less the Indemnity Escrow Amount (as defined below),
(ii) a stock certificate made out in favor of Axys
representing *** shares of DPII Common Stock (the "Indemnity Escrow Amount")
to the Escrow Agent to be held in an escrow account pursuant to the Indemnity
Escrow Agreement and subject to the terms of this Agreement.
(iii) the Non-Competition Agreement, duly executed by DPII;
(iv) the Indemnity Escrow Agreement, duly executed by DPII
and the escrow agent;
(v) [RESERVED];
(vi) the Facilities Agreement, duly executed by DPII;
(vii) [RESERVED];
(viii) the Compound Supply Agreement, duly executed by DPII;
(ix) the Investors' Rights Agreement Amendment, duly
executed by DPII;
(x) the Shareholders' Agreement Amendment, duly executed by
DPII;
(xi) the Voting Agreement Amendment, duly executed by DPII;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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(xii) the Standstill Agreement, duly executed by DPII;
(xiii) a certificate of an officer of DPII,
substantially in the form of Exhibit D attached hereto, duly executed by DPII;
and
(xiv) a certificate of the Secretary of DPII and
Mergersub, respectively, certifying as of the Closing Date, (A) a true and
complete copy of the organizational documents of DPII or Mergersub, as the case
may be, certified as of a recent date by the Secretary of State of the State of
California or Delaware, as the case may be, (B) a true and complete copy of the
resolutions of the board of directors or managers of DPII and Mergersub,
respectively, and the resolutions of the member of Mergersub, each authorizing
the execution, delivery and performance of this Agreement by DPII and Mergersub,
respectively, and the consummation of the transactions contemplated hereby, (C)
a certificate of each appropriate Secretary of State certifying the good
standing of each of DPII and Mergersub in its state of incorporation or
organization and (D) incumbency matters.
2.15 Further Assurances. If, at any time after the Effective Time, any
further action is necessary or desirable to consummate the Merger, to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Mergersub, the officers and directors of Axys,
Mergersub, the Company and DPII are fully authorized in the name of their
respective corporation or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AXYS
Axys represents and warrants to DPII, except for the matters set forth
on the Disclosure Schedule furnished to DPII, which matters shall be deemed
exceptions to such representations and warranties as if made hereunder, as
follows:
3.1 Organization of the Company.
The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. The Company is duly
authorized to conduct business and is in good standing in each jurisdiction
where such qualification is required except for any jurisdiction where failure
so to qualify would not have a Material Adverse Effect upon the Company. The
Company has full power and authority, and holds all Permits and authorizations
necessary to carry on its Business and to own and use the Company Assets and
Properties owned and used by the Company except where the failure to have such
power and authority or to hold such Permit or authorization would not have a
Material Adverse Effect on the Business. The Company has delivered to DPII
correct and complete copies of its charter documents and organizational
documents, each as amended to date.
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3.2 Capital Stock of the Company.
The authorized capital stock of the Company consists of Twelve Million
(12,000,000) shares of common stock, par value $.001 per share, of which
10,006,250 shares are issued and outstanding as of the date of this Agreement,
and no shares are in treasury. No shares of the Company's capital stock have
been issued since March 31, 2000. The Company Stock is duly authorized, validly
issued, fully paid and nonassessable. There are no outstanding subscriptions,
options, warrants, calls, commitments or other rights of any kind for the
purchase or acquisition of, nor any securities convertible or exchangeable for,
any capital stock of the Company or any agreements or offers to issue any such
subscriptions, options, warrants, calls, commitments or other rights.
3.3 Ownership of Shares.
Axys owns beneficially and of record 10,000,000 shares of the Company
Stock, free and clear of all Encumbrances, and has good and valid title to such
shares.
3.4 Authority of Axys.
Axys has the right, power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder and thereunder and no other proceedings on the part of Axys are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. No vote of, or consent by, the holders of any class or
series of capital stock or indebtedness issued by Axys is necessary to authorize
the execution and delivery by Axys of this Agreement or the consummation of this
Agreement. This Agreement (and at Closing all exhibits referenced herein) have
been duly and validly executed and delivered by Axys and each constitutes a
legal, valid and binding obligation of Axys enforceable against Axys in
accordance with its respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.5 Authority of the Company.
The Company has all necessary power and authority and has taken all
action necessary to enter into this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder and no other
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. The vote of, or consent
by, the holders of each class or series of capital stock or indebtedness issued
by the Company necessary to authorize the execution and delivery by the Company
of this Agreement or the consummation of this Agreement has been obtained. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by
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<PAGE> 26
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies.
The Company does not, directly or indirectly, beneficially own or own of
record any equity securities of or any other equity interest in, any other
Person or have any other equity investment or other ownership interest in any
other Person.
3.6 No Conflicts.
The execution and delivery by Axys and the Company of this Agreement
does not, and the performance by Axys and the Company of their respective
obligations under this Agreement and the consummation of the transactions
contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of the Company or Axys;
(b) conflict with or result in a violation or breach of any term or
provision of any law, Order, Permit, statute, rule or regulation applicable to
Axys, the Company or the Business, Company Assets or Properties;
(c) result in a breach of, or default under (or give rise to right
of termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement, lease
or other similar instrument or obligation to which the Company, any of its
Company Assets and Properties or the Company Stock may be bound, except for such
breaches or defaults as set forth on the Disclosure Schedule as to which
requisite waivers or consents will have been obtained by the Closing Date; or
(d) result in an imposition or creation of any Encumbrance on the
Business, the Company Assets or Properties or the Company Stock.
3.7 Consents and Governmental Approvals and Filings.
No consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other Persons on the part of Axys or the
Company is required in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby or
to enable the Company to conduct the Business after the Closing Date in a manner
consistent with that in which the Business is presently conducted.
3.8 Books and Records.
The minute books and other corporate records of the Company and Axys, to
the extent they relate to the Business, contain a true and complete record, in
all material respects, of all actions taken at all meetings and by all written
consents in lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of the Company and Axys. The
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stock transfer ledgers and other similar records of the Company and Axys, to the
extent they relate to the Business, accurately reflect all issuances and record
transfers in the capital stock of the Company. The books and records of the
Company and Axys, to the extent they relate to the Business, taken as a whole,
fairly reflect all of their respective transactions, properties, assets and
liabilities. Except as specifically noted therein and except for revenue items
from customers that may be non-recurring, there have been no material, special
or non-recurring items of income or expense with respect to the Company and
Axys, to the extent they relate to the Business, during the periods covered by
the Financial Statements, and the Interim Balance Sheet does not reflect any
write-up or revaluation increasing the book value of any assets of the Company
and Axys, to the extent they relate to the Business, except as specifically
disclosed in the Financial Statements or in the notes thereto. Except as
specifically noted therein, the Financial Statements reflect all adjustments
necessary for a fair presentation of the financial condition and results of
operations of the Company and Axys, to the extent they relate to the Business.
The other Books and Records of the Company and the Axys, to the extent they
relate to the Business, are in all material respects true and correct and, taken
as a whole, are complete.
3.9 Financial Statements.
The Company has previously delivered to DPII the Financial Statements.
Such Financial Statements (i) are true, correct and complete, (ii) have been
prepared in accordance with the Books and Records of the Company in a consistent
manner throughout all of the periods indicated, (iii) have been prepared in
conformity with GAAP, consistently applied, and (iv) fairly present the
financial condition and results of operations of the Company as of the
respective dates thereof and for the periods covered thereby; provided, that the
Interim Balance Sheet is subject to normal year-end adjustments and lack
footnotes and certain other presentation items.
3.10 Absence of Changes.
Except for the execution and delivery of this Agreement and the
transactions to take place pursuant hereto on or prior to the Closing Date,
since the Interim Balance Sheet Date, there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to result in a Material Adverse Effect
on the Company or the Business and since the Interim Balance Sheet Date, neither
the Company nor Axys has taken any action which if taken after the date of this
Agreement, without DPII's consent, would violate Section 7.2 hereof.
3.11 No Undisclosed Liabilities.
Except as disclosed in the Financial Statements, there are no
Liabilities, nor any basis for any claim against the Company for any such
Liabilities, relating to or affecting the Company or any of its Company Assets
and Properties, other than Liabilities incurred after the end of the period
covered by the Interim Financial Statements in the Ordinary Course of Business
which have not had, and could not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect on the Company.
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3.12 Tangible Personal Property.
The Company is in possession of and has good and marketable title to, or
has valid leasehold interests in or valid rights under written agreements to
use, all Company Assets and Properties constituting tangible personal property
(including inventory) reflected on the Interim Balance Sheet and any tangible
personal property acquired since that date other than tangible personal property
disposed of since such date in the Ordinary Course of Business. All such Company
Assets and Properties are (if it has a cost or fair market value above $1,000)
listed in Section 3.12 of the Disclosure Schedule and are free and clear of all
Encumbrances, other than Permitted Encumbrances.
3.13 Benefit Plans; ERISA.
(a) The Disclosure Schedule lists each Benefit Plan together with a
brief description of the type of plan and benefit provided thereunder. The
Company has made no commitment, proposal, or communication to employees
regarding the creation of an additional Plan or any increase in benefits under
any Benefit Plan. The Company has provided to DPII (i) a copy of each Benefit
Plan (including amendments) or, where substantially similar arrangements exist,
a sample copy and a list of persons participating in such arrangement, (ii) the
three (3) most recent annual reports on the Form 5500 series for each Benefit
Plan required to file such report, (iii) the most recent IRS determination
letter with respect to each Qualified Plan and (iv) the most recent trustee's
report for each Benefit Plan funded through a trust.
(b) Neither the Company, an ERISA Affiliate nor predecessor thereof
has ever maintained, contributed to or been obligated to contribute to any
Defined Benefit Plan or multiemployer plan (as defined in Section (3)(37) or
4001(a)(3) of ERISA) and no condition exists that presents a material risk to
the Company or an ERISA Affiliate of incurring a liability under Title IV of
ERISA.
(c) Each Benefit Plan has been operated and administered in
accordance with its terms and, as of the Closing Date, will be in full
compliance, in form and operation, with all applicable laws (including but not
limited to ERISA and the Code) except to the extent a failure to do so would not
have a Material Adverse Effect.
(d) Each Qualified Plan has received a determination letter from
the Internal Revenue Service confirming that it qualifies under Section 401(a)
of the Code and nothing has occurred since the issuance of that letter which
would adversely affect such qualified status or the plan sponsor's ability to
rely on such determination letter.
(e) No Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company or any ERISA Affiliate beyond their termination
of service (other than (i) coverage mandated by applicable law, (ii) benefits
under a Qualified Plan, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or any ERISA Affiliate or (iv)
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benefits the full cost of which is borne by any current or former employee (or
his or her beneficiary)).
(f) The consummation of the transactions contemplated by this
Agreement will not, either immediately or upon the occurrence of any event
thereafter, (i) entitle any current or former employee or officer or director of
the Company or any ERISA Affiliate to severance pay, unemployment compensation
or any other payment, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation otherwise due any such individual.
(g) There are no pending or, to the Knowledge of Axys and the
Company, anticipated or threatened claims by or on behalf of any Benefit Plan,
by any employee or beneficiary covered under any such Benefit Plan, or otherwise
involving any such Benefit Plan (other than routine claims for benefits).
3.14 Real Property.
Neither Axys nor the Company owns any real property related to the
Business. The Disclosure Schedule contains a complete and accurate legal
description of (i) each parcel of real property leased by the Company (as lessee
or lessor) (the "Real Property") and (ii) all Encumbrances (other than Permitted
Encumbrances) relating to or affecting the Real Property. The Company has a
valid leasehold interest in all real property used in or relating to the conduct
of the Business, free and clear of all Encumbrances other than Permitted
Encumbrances. The Company has rights of ingress and egress with respect to the
Real Property, and all buildings, structures, facilities, fixtures and other
improvements thereon material for the operation of the Business. There is no
pending or, to the Knowledge of Axys or the Company, threatened condemnation of
any of the respective parcels of Real Property or any part thereof. To the
Knowledge of Axys and the Company, none of such Real Property, buildings,
structures, facilities, fixtures or other improvements, or the use thereof,
contravenes or violates any building, zoning, fire protection, administrative,
occupational safety and health or other applicable law, rule, or regulation .
Each lease with respect to the Real Property is a legal, valid and binding
agreement of the Company subsisting in full force and effect enforceable in
accordance with its terms, and there is no, and the Company has not received
notice of any, default (or any condition or event which, after notice or lapse
of time or both, would constitute a default) thereunder. The Company does not
owe any brokerage commissions with respect to any such Real Property.
3.15 Intellectual Property Rights.
(a) Section 3.15(a) of the Disclosure Schedule lists (i) all those
United States, international and foreign (A) patents and patent applications
(including provisional applications), (B) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks and (C) registered copyrights and
applications for copyright registration that are owned by the Company or Axys
and are used in or currently contemplated to be used in the Business
(collectively, the "Company Registered Intellectual Property") and (ii) all
licenses, sublicenses and other agreements to use Intellectual Property
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rights owned by any third party which are not generally commercially available
and are currently used by the Company in the conduct of its Business. The
Company has delivered to DPII complete and accurate copies of each agreement,
registration and other material documents relating to the Company Registered
Intellectual Property set forth in Section 3.15(a) of the Disclosure Schedule.
(b) The Company owns or possesses adequate and enforceable
licenses, trade secrets, know-how, patents, copyrights, trademarks, service
marks, brand names and trade names, and other rights of every kind, and all
applications for any of the foregoing, necessary for, or used in the operation
of, the Business as now conducted, and such ownership, possession or license
does not conflict with or infringe on the rights of third parties with respect
to the Company Intellectual Property. Entry into this Agreement and consummation
of the transactions contemplated hereby will not impair the Company's ownership
or use of the Company Intellectual Property. No Person has a right to receive a
royalty or similar payment directly or indirectly from the Company in respect of
any item of Company Intellectual Property pursuant to any contractual
arrangements entered into by the Company. Neither the Company nor Axys has
received any notice that its or any third party's use of any item of Company
Intellectual Property is infringing upon or otherwise violating the rights of
the Company or Axys or any third party in or to such Company Intellectual
Property, and no notices have been received by, and to the knowledge of Axys and
the Company, no proceedings have been instituted against, the Company or Axys
alleging that use or proposed use of any item of the Company Intellectual
Property by the Company or any third party infringes upon or otherwise violates
any rights of the Company or a third party in or to such Company Intellectual
Property.
(c) With respect to (i) each item of Company Registered
Intellectual Property, necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been made and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent
authorities in the United States for the purposes of maintaining such Company
Registered Intellectual Property and (ii) those patents set forth in Section
3.15(a) of the Disclosure Schedule, no information material to patentability
under applicable law has been knowingly withheld from the examining office in a
manner that would constitute fraud or inequitable conduct. The Company owns and
has good and exclusive title free and clear of any Encumbrance to all Company
Registered Intellectual Property listed in Section 3.15(a) of the Disclosure
Schedule.
(d) To the extent that any work, invention, or material has been
developed or created by a third party for the Company, the Company has a written
agreement with such third party with respect thereto and the Company thereby has
obtained ownership of, and is the exclusive owner of, or has a valid license to
use, all Company Intellectual Property in such work, material or invention by
operation of law or by valid assignment or by agreement, as the case may be.
(e) Section 3.15(e) of the Disclosure Schedule lists all contracts,
licenses and agreements to which the Company is a party that are currently in
effect (i) with respect to
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Company Intellectual Property licensed (or subject to an option or similar right
to license) to any third party; or (ii) pursuant to which a third party has
licensed or transferred any Company Intellectual Property to the Company other
than customary confidentiality agreements and material transfer agreements
entered into in the Ordinary Course of Business of the Company.
(f) The contracts, licenses and agreements listed in Section
3.15(a) and (e) are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements listed in Section 3.15(a) and (e) of the
Disclosure Schedule. The Company is in material compliance with, and has not
materially breached any term any of such contracts, licenses and agreements
listed in Section 3.15(a) and (e) of the Disclosure Schedule and, to the
Knowledge of Axys and the Company, all other parties to such contracts, licenses
and agreements are in compliance with, and have not breached any term of, such
contracts, licenses and agreements. Following the Closing Date, the Company will
be permitted to exercise all of the Company's rights under the contracts,
licenses and agreements listed in Sections 3.15(a) and (e) of the Disclosure
Schedule to the same extent the Company would have been able to had the
transactions contemplated by this Agreement not occurred and without the payment
of any additional funds other than ongoing fees, royalties or payments which the
Company would otherwise be required to pay under existing agreements.
(g) Section 3.15(g) lists all contracts, licenses and agreements
between the Company and any third party wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify, hold
harmless or otherwise assume or incur any obligation or liability with respect
to the infringement or misappropriation by the Company or such third party of
the Intellectual Property of any third party.
3.16 Proprietary Information of Third Parties.
Neither Axys nor the Company has received notice from a third party
claiming nor, to the knowledge of the Company or Axys does any third party have
reason to claim that any person employed by or affiliated with the Company in
connection with and during the Company's ownership and operation of its Business
has (i) violated or may be violating any of the terms or conditions of such
person's employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party, or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. No third party has
requested information from Axys or the Company which suggests that such a claim
might be contemplated. To the Knowledge of Axys and the Company, no person
employed by or affiliated with the Company in connection with and during the
Company's ownership and operation of its Business has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer and no person employed by or affiliated with the Company in
connection with and during the Company's ownership and operation of its Business
has violated any confidential relationship
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which such person may have had with any third party, in connection with the
Business, and Axys and the Company have no reason to believe there will be any
such employment or violation.
3.17 Litigation.
There are no Proceedings, including bankruptcy proceedings, pending or,
to the Knowledge of Axys and the Company, there are no investigations or
Proceedings threatened or anticipated against, relating to or affecting (i) the
Company, its Company Assets and Properties or the Business, (ii) Axys and its
business and properties to the extent the same could be reasonably expected to
adversely effect the ability of Axys to consummate the transactions contemplated
hereby, or (iii) the transactions contemplated by this Agreement. To the
Knowledge of Axys and the Company, the Company is not in default with respect to
any Order, and there are no unsatisfied judgments against the Company.
3.18 Compliance with Law.
Except as otherwise provided in Section 3.20 below, the Company is in
compliance with all applicable laws, statutes, Orders, ordinances and
regulations, whether federal, state, local or foreign, except where the failure
to comply, in each instance and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect on the Company. Neither the
Company nor Axys has received any written notice to the effect that, or
otherwise has been advised that, the Company is not in compliance with any of
such laws, statutes, Orders, ordinances or regulations, where the failure to
comply could reasonably be expected to result in a Material Adverse Effect on
the Company.
3.19 Contracts.
(a) Section 3.19(a) of the Disclosure Schedule contains a true and
complete list of each of the following written or oral contracts, agreements or
other arrangements (each, a "Material Contract") to which the Company is a party
or by which any of its Company Assets and Properties are bound (and, to the
extent oral, accurately describes the terms of such contracts, agreements and
arrangements):
(i) all collective bargaining or similar labor agreements;
(ii) all contracts for the employment of any officer,
employee or other person or entity on a full time, part time, consulting or
other basis;
(iii) all loan agreements, indentures, debentures, notes or
letters of credit relating to the borrowing of money or to mortgaging, pledging
or otherwise placing a lien on any material asset or material group of assets of
the Company;
(iv) all guarantees of any obligation;
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(v) all leases or agreements under which the Company is
lessee or lessor of, or holds, or operates, any property, real or personal,
owned by any other party;
(vi) all commitments, contracts, sales contracts, purchase
orders, mortgage agreements or groups of related agreements with the same party
or any group or affiliated parties which require or may in the future require
payment of any consideration by the Company of an amount in excess of $25,000
and which cannot be terminated within thirty (30) days after giving notice of
termination without resulting in any cost or penalty to the Company;
(vii) all license agreements, distribution agreements or any
other agreements involving any Company Intellectual Property;
(viii) all subscription or registration rights agreements or
any other agreements related to the equity ownership of the Company;
(ix) all contracts or commitments that in any way restrict
the Company from carrying on its Business anywhere in the world; and
(x) all other contracts and agreements that (A) involve the
payment or potential payment, pursuant to the terms of any such contract or
agreement, by the Company or the other party of an amount in excess of $25,000
and (B) cannot be terminated within thirty (30) days after giving notice of
termination without resulting in any cost or penalty to the Company.
(b) Each contract, agreement or other arrangement disclosed in
Section 3.19(a) of the Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding agreement, enforceable by the Company in
accordance with its terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
and (b) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies. The Company has performed all of its
required material obligations under, and is not materially in violation or
breach of or default under, any such contract, agreement or arrangement. To the
Knowledge of Axys and the Company, the other parties to any such contract,
agreement or arrangement are not in violation or breach of or default under any
such contract, agreement or arrangement. None of the present employees,
officers, directors or shareholders of the Company is, and none of the former
employees, officers or directors of the Company while providing services for the
Company was, a party to any oral or written contract or agreement prohibiting
any of them from freely competing with other parties or engaging in the
Company's Business as now operated.
3.20 Environmental Matters.
(a) As of the Effective Date the Company is in material compliance
with all applicable "Environmental Laws" (as defined below). The Company has not
received any written communication, whether from a Governmental or Regulatory
Authority or citizen group, that alleges that the Company or any of the Company
Assets or Properties used in the Business are not in material compliance with
Environmental Laws. All Permits and other governmental
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authorizations currently held by the Company or under which it operates pursuant
to Environmental Laws (collectively, "Environmental Permits") are identified,
together with their respective expiration dates, in Section 3.20(a) of the
Disclosure Schedule and, to the knowledge of Axys and the Company, currently
represent all Environmental Permits necessary for the conduct of the Business as
currently conducted. Neither the Company nor Axys has not been notified by any
relevant Governmental or Regulatory Authority that any Environmental Permit will
be modified, suspended or revoked or cannot be renewed in the Ordinary Course of
Business, and, to the Knowledge of Axys and the Company, no Environmental Permit
will be modified, suspended or revoked, or cannot be renewed in the Ordinary
Course of Business of the Company.
(b) As of the Effective Date, there is no "Environmental Notice"
(as defined below) that is (i) pending or, to the Knowledge of Axys and the
Company, threatened in writing against the Company or (ii) to the Knowledge of
Axys and the Company, pending or threatened in writing against any Person whose
liability for such Environmental Notice may have been retained or assumed by or
could reasonably be imputed or attributed to the Company.
(c) To the Knowledge of Axys and the Company there are no past or
present actions, activities, circumstances, conditions, events or incidents
arising from the operation, ownership or use of any property currently or
formerly owned, operated or used by the Company (or any entity formerly an
Affiliate of the Company), including, without limitation, the release, emission,
discharge or disposal of any "Material" (as defined below) into the
"Environment" (as defined below), that (i) could reasonably be expected to
result in the incurrence by the Company of significant costs under Environmental
Laws or (ii) could reasonably be expected to form the basis of any Environmental
Notice against or with respect to the Company or against any Person whose
liability for any Environmental Notice may have been retained or assumed by or
could be imputed or attributed to the Company.
(d) Without in any way limiting the generality of the foregoing,
(i) all underground storage tanks, and the capacity and contents of such tanks,
located on property at any time owned, leased or used by the Company are
identified in Section 3.20(d) of the Disclosure Schedule, (ii) to the knowledge
of Axys and the Company there is no asbestos contained in or forming part of any
building, building component, structure or office space owned, leased or used by
the Company, (iii) to the knowledge of Axys and the Company no polychlorinated
biphenyls (PCB's) are used, disposed of or stored on any property owned, leased
or used by the Company and (iv) all locations currently or formerly owned,
leased or used by the Company (or any former Affiliate of the Company) are
identified and described in Section 3.20(d) of the Disclosure Schedule.
(e) The Company and Axys have heretofore delivered to DPII correct
and complete copies of all environmental studies, assessments, reports, results
of investigations and audits of the Company's Assets and Properties of the
Business, and made available similar information that is in the possession of
the Company and Axys regarding environmental matters
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pertaining to the operations of the Business or the environmental condition of
real property currently or previously owned, leased or operated by the Company
or used in the Business.
(f) By virtue of the transactions set forth herein and contemplated
hereby, or as a condition to the effectiveness of any transactions contemplated
hereby, neither the Company nor Axys is required under any Environmental Laws to
undertake (i) the performance of a site assessment for Materials, (ii) the
removal or remediation of Materials, (iii) the giving of notice to or receiving
the approval of any Governmental Authority, or (iv) the recording or delivery to
other persons of any disclosure document or statement pertaining to
environmental matters.
(g) For purposes of this Section 3.20:
(i) "Environment" means any surface water, ground water,
drinking water supply, land surface or subsurface strata, natural resources
ambient air and any indoor workplace.
(ii) "Environmental Notice" means any civil, criminal or
administrative action, suit, written demands, written claims, hearing, notice of
violation, written notice of investigation, proceeding, demand letter or written
notice seeking redress by any Person alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental costs, harm or damages to person, property, natural resources or
other fines or penalties) arising out of, based on or resulting from (a) the
presence, emission, discharge, disposal, release or threatened release in or
into the Environment of any Material prior to the Effective Date or (b)
circumstances arising prior to the Effective Date and forming the basis of any
violation, or alleged violation, of any applicable Environmental Law.
(iii) "Environmental Laws" means all national, state, local
and foreign laws, codes, regulations, common law, requirements, directives,
Orders, and administrative or judicial interpretations thereof relating to
pollution, the protection of the Environment or the emission, discharge,
disposal, release or threatened release of Materials in or into the Environment.
(iv) "Material" means pollutants, contaminants or chemical,
industrial, hazardous or toxic materials or wastes, including, without
limitation, petroleum and petroleum products.
3.21 Inventory.
The inventory of the Company is in good and merchantable condition, and
suitable and usable at its carrying value in the Ordinary Course of Business for
the purposes for which intended and the value of such inventory is accurately
reflected in the books and records of the Company in accordance with GAAP in a
consistent manner through all relevant periods. To the knowledge of the Company,
there is no material adverse condition affecting the supply of materials
available to the Company. To the Knowledge of Axys and the Company, no supplier
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of the Company is in violation of any federal, state, local or foreign law,
ordinance, regulation or Order, which violation has a Material Adverse Effect on
such supplier's ability to produce or supply the Company or Axys with any
product necessary for the operations of the Business.
3.22 Plants, Buildings, Structures, Facilities and Equipment.
(a) All plants, buildings, structures, facilities and equipment
used by the Company in the conduct of its business are structurally sound with
no known material defects and are in good operating condition and repair
(subject to normal wear and tear) so as to permit the operation of its Business
as presently conducted;
(b) No such plant, building, structure, facility or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs which are not material in nature or cost; and
(c) With respect to each plant, building, structure, facility or
item of equipment, the Company has not received notification that it is in
violation, in any material respect, of any applicable building, zoning,
subdivision, fire protection, health or other law, Order, ordinance or
regulation and no such violation exists.
3.23 Insurance.
Set forth in Section 3.23 of the Disclosure Schedule is a complete and
accurate list of all primary, excess and umbrella policies, bonds and other
forms of insurance currently owned or held by or on behalf of and/or providing
insurance coverage to the Company or the Company Assets and Properties of the
Company (or any of the Company's directors, officers, salespersons, agents or
employees), including the following information for each such policy: type(s) of
insurance coverage provided; per occurrence and annual aggregate deductibles or
self-insured retentions; per occurrence and annual aggregate limits of liability
and the extent, if any, to which the limits of liability have been exhausted.
All policies, bonds and other forms of insurance set forth in Section 3.23 of
the Disclosure Schedule are in full force and effect, and with respect to such
policies, all premiums currently payable or previously due have been paid, and
no notice of cancellation or termination has been received with respect to any
such policy. All such policies, bonds and other forms of insurance are
sufficient for compliance with all requirements of law and all agreements to
which the Company is a party or otherwise bound, and are valid, outstanding,
collectible and enforceable policies and, to the Knowledge of Axys and the
Company, provide adequate insurance coverage for the Company and the Business
and Company Assets and Properties of the Company.
3.24 Taxes.
(a) Axys and the Company have timely filed with the appropriate
Taxing Authorities all income and franchise Tax Returns and all other Tax
Returns relating to the Company, Company Assets and Properties and Tax
withholding obligations of the Company required to be filed by or with respect
to them (taking into account applicable extensions). Each
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such Tax Return was correct and complete in all material respects when filed.
Each of Axys and the Company has paid in full (or had paid on its behalf), or
has made provision in the Financial Statements for, all Taxes which are due or
claimed to be due by any Taxing Authority (whether or not shown as due on any
Tax Return), and has made (or has had made on its behalf) all required estimated
payments of Taxes (in the case of Axys, Taxes related to the Company and the
Company Assets and Properties). The Company has not incurred any liability for
Taxes other than in the Ordinary Course of Business since the date of the most
recent Financial Statements. There are no liens for Taxes upon the Company
Assets and Properties except for statutory liens for current Taxes not yet due.
(b) None of Axys, the Company or any subsidiaries of the Company
has requested any extension of time within which to file any Tax Return, which
Tax Return has not since been filed, or waived any statute of limitations for,
or agreed to any extension of time with respect to, the assessment of Taxes. The
Company was formed on June 11, 1999 and has never filed, and has never been
required to file, any federal or state income or other material Tax Returns.
Neither the Company nor any of its subsidiaries has received any notice of
deficiency or assessment from any Taxing Authority with respect to liabilities
for Taxes which have not been fully paid or finally settled. Further, no state
of facts exists or has existed which would constitute grounds for the assessment
of any liability for Taxes of or with respect to the Company or any of its
subsidiaries for periods prior to the Closing Date which have not been audited
by any Taxing Authority. None of the Company, its officers or directors, any
subsidiary of the Company, its officers or directors, or Axys, its officers or
directors is aware of any information which has caused or should cause any of
them to believe that an audit by any Taxing Authority of Taxes of or with
respect to the Company or any of its subsidiaries may be forthcoming. No claim
has ever been made by an authority in a jurisdiction where the Company or any of
its subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction.
(c) The Company and each of its subsidiaries has withheld and paid
over to the appropriate Taxing Authorities all Taxes required to have been so
withheld and paid over with respect to amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other Person for all periods
under all applicable laws relating to the withholding of Taxes.
(d) Neither the Company nor any of its subsidiaries has any
liability for the Taxes of any other Person (i) under Treasury Regulations
Section 1.1502-6 (or any similar provision of state, local, or foreign law)
other than as a member of the Axys affiliated group, (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise.
(e) Neither the Company nor any of its subsidiaries has filed or
will file prior to the Closing a consent under Section 341(f) of the Code.
Neither the Company nor any of its Subsidiaries is obligated to make any
payments, or is a party to any agreement (whether written or oral) that could
obligate it to make any payments that will not be deductible under Section
162(m) or Section 280G of the Code, whether paid prior to or after the Closing.
Neither the
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Company, nor any of its Subsidiaries is or has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code.
(f) Neither the Company nor any of its subsidiaries has agreed, and
the Company or such subsidiary is not required, to make any adjustment pursuant
to Section 481(a) of the Code (or any predecessor provision) by reason of any
change in any accounting method or change in basis for determining the reserves
of the Company or such subsidiary or otherwise, and neither the Company nor any
of its subsidiaries has any application pending with any Taxing Authority
requesting permission to make any changes in any accounting method or in the
basis for determining its reserves. The IRS has not proposed any such adjustment
or change in accounting method or in the basis of determining its reserves.
(g) Neither the Company nor any of its subsidiaries has any
outstanding balances of deferred gain or loss accounts related to any
"intercompany transactions" (as defined in Treasury Regulations Section
1.1502-13(b)) to which the Company or any of its subsidiaries was a party.
(h) Axys will file for the Pre-Closing Period, as a common parent
corporation of an "affiliated group" within the meaning of Section 1504(a) of
the Code (such group, an "Affiliated Group"), a consolidated return for federal
income tax purposes on behalf of itself and the Company, and the Company will be
an "includible corporation" (within the meaning of Section 1504(b) of the Code)
in such Affiliated Group.
(i) There is no power of attorney given by or binding upon the
Company or any of its subsidiaries with respect to Taxes for any period for
which the applicable statute of limitations (including any waivers or
extensions) has not expired as of the date of this Agreement or will not have
expired by the Closing Date.
(j) Neither the Company nor any of its subsidiaries is a party to
or otherwise subject to any arrangement entered into in anticipation of the
Closing, which is not in accordance with past practice and not required by this
Agreement and (i) which has the effect of or gives rise to the recognition of a
deduction or loss before the Closing Date and a corresponding recognition of
taxable income or gain after the Closing Date, or (ii) would reasonably be
expected to have the effect of or give rise to the recognition of taxable income
or gain by the Company or such subsidiary after the Closing Date without the
receipt of or entitlement to a corresponding amount of cash.
3.25 Labor and Employment Relations.
To the Knowledge of Axys and the Company, no officer, key employee or
group of ten (10) or more employees of the Company has or have any plans to
terminate his, her or their employment with the Company. The Company is not a
party to or bound by any collective bargaining agreement with any labor
organization, group or association covering any of its employees, and to the
Knowledge of Axys and the Company, there are no attempts to organize any of the
Company's employees by any person, unit or group seeking to act as their
bargaining
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agent. The Company has complied in all material respects with all applicable
laws relating to the employment of labor, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining, discrimination
against race, color, national origin, religious creed, physical or mental
disability, sex, age, ancestry, medical condition, marital status or sexual
orientation, and the withholding and payment of social security and other taxes.
There are no pending or, to the Knowledge of Axys and the Company, threatened
charges (by employees, their representatives or governmental authorities) of
unfair labor practices or of employment discrimination or of any other wrongful
action with respect to any aspect of employment of any person employed or
formerly employed by the Company. No union representation elections relating to
the Company's employees have been scheduled by any Governmental or Regulatory
Authority, no organizational effort is being made with respect to any of such
employees, and to the Knowledge of Axys and the Company, there is no
investigation of the Company's employment policies or practices by any
Governmental or Regulatory Authority pending or threatened. The Company is not
currently, and in the past has not been, involved in labor negotiations with any
unit or group seeking to become the bargaining unit for any employees of the
Company. The Company has never experienced any work stoppages and to the
Knowledge of Axys and the Company, no work stoppage has been threatened or is
planned.
3.26 Certain Employees.
The Company has provided to DPII under cover of a letter dated as of the
date hereof, a list of the names of the Company's employees and consultants as
of the date hereof involved in the senior management of the Business, together
with the title or job classification of each such person and the total
compensation (with wages and bonuses, if any, separately detailed) paid in 1998
and 1999 and to date in 2000 (if applicable) and the current rate of pay for
each such person on the date of this Agreement (the "Employee Letter"). The
Employee Letter shall specifically indicate the employees and consultants hired
or retained since June 30, 1999 or which the Company has agreed to hire or
retain. None of such persons has an employment agreement or understanding,
whether oral or written, with the Company which is not terminable on notice by
the Company without cost or other liability to the Company. From December 31,
1999, to the date hereof, inclusive, the Company has not fired, terminated or
otherwise discharged any employee or consultant with total expected annual
compensation (including bonus potential) in excess of $30,000, or entered into
(or agreed to enter into) any employment, consulting or similar agreement with a
value in excess of $30,000.
3.27 Absence of Certain Changes. Since December 31, 1999 Axys and the
Company have conducted the Business in the ordinary and usual course consistent
with past practice, and there has not been any of the following:
(a) any change or amendment to the certificate or articles of
incorporation, bylaws or other organizational documents of the Company;
(b) any issuance or sale or purchase or redemption of any equity
securities or of any derivative securities of the Company, other than pursuant
to this Agreement;
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(c) any dividend or other distribution declared, set aside, paid or
made with respect to its equity securities or any direct or indirect redemption,
purchase or other acquisition of such equity securities by the Company;
(d) any acquisition or disposition of assets by the Company having
a fair value or for a purchase price in excess of $100,000, in the aggregate,
other than acquisitions or dispositions made in the ordinary course of business
consistent with past practice;
(e) any incurrence of any Liabilities except Liabilities incurred
in the ordinary course of business and consistent with past practice, none of
which, in any case or in the aggregate, are material to the financial condition
or operating results of the Company;
(f) any payment, discharge or satisfaction of any Liabilities other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of Liabilities and obligations reflected or
reserved against in the Financial Statements or incurred in the ordinary course
of business and consistent with past practice;
(g) any commitment, agreement, settlement or transaction entered
into, amended, or terminated (or any waiver of any rights or remedies under any
of the foregoing), other than in the ordinary course of business consistent with
past practice;
(h) any amendment of any mortgage, Encumbrance, lease agreement,
Permit, loan agreement, indenture or other agreement, instrument or document,
other than in the ordinary course of business consistent with past practice;
(i) any default, event of default or breach (or any event which,
with notice or the passage of time or both, would constitute a default, event of
default or breach) by the Company or Axys with respect to the Business of any
credit, financing or other agreement or instrument relating to any material
Indebtedness;
(j) any sale, assignment, transfer or license of any patents,
patent applications, designs, logos, trademarks, trademark applications,
servicemarks, servicemark applications, trade names, Internet domain names,
copyrights, trade secrets, licenses, know-how, formulae, models, information,
software and processes;
(k) any damage, destruction, theft or other casualty loss that is
reasonably likely to have a Material Adverse Effect;
(l) any entry into or amendment of any Material Contract;
(m) any entry into or amendment of any employment or severance
compensation agreement or consulting or similar agreement with, or any increase
in the compensation or benefits payable or to become payable by the Company to
any employee of the Company (other than agreements terminable without penalty or
similar payment by the Company, as the case may be, on not more than 30 days'
notice and any other increases in
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compensation payable or to become payable to employees (other than directors or
officers) in the ordinary course of business consistent with past practice);
(n) any write down or write up in the value of any inventories
(including write-downs by reason of shrinkage or mark-down), any change, other
than in the ordinary course of business consistent with past practice, in the
standard costs utilized in determining the value of any inventories or any
failure to replenish any inventories in a normal and customary manner consistent
with its prior practice and prudent business practices prevailing in the
industry, or made any purchase commitment in excess of the normal, ordinary and
usual requirements of its business or at any price in excess of the then current
market price or upon terms and conditions more onerous than those usual and
customary in the industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with its prior practice and
prudent business practices prevailing in the industry;
(o) any change in the financial or tax accounting methods,
principles or practices of the Company or Axys with respect to the Business for
financial or tax accounting purposes, except as required by GAAP or applicable
law;
(p) any adoption of a plan of or any agreement or arrangement with
respect to or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of the Company;
(q) any change, condition, occurrence, circumstance or other event
that, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect;
(r) any settlement of any material Tax audit, the making or
changing of any material Tax election or the filing of any amended Tax Return;
or
(s) any commitment or agreement to do any of the foregoing, except
as otherwise required or expressly permitted by this Agreement.
3.28 Customers/Supplier.
The Company has previously provided to DPII a true and correct list of
the Company's ten largest customers and gross revenues from such customers
during the 1998 fiscal year and the 1999 fiscal year and for the three-month
period ended March 31, 2000 (measured by revenues to the Business). Since
January 1, 1999, no such customer has stopped doing business with the Company,
and to the Knowledge of Axys and the Company, no such customer has advised Axys
or the Company that it is not continuing, or is terminating, or is making an
adverse change with respect to, its business with the Company and to the
Knowledge of Axys and the Company the consummation of the transactions
contemplated by the Agreement will not adversely affect any such relationships.
To the Knowledge of Axys and the Company, the Company and the Business are not
dependent upon any single vendor or group of affiliated vendors such that the
discontinuance of supply or service from such vendor or vendors would
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have, or could be reasonably expected to have, a Material Adverse Effect on the
Company or the Business.
3.29 Necessary Property.
All of the Real Property and Company Assets and Properties owned or
leased by the Company and the Company Intellectual Property listed on the
Disclosure Schedule owned by or licensed to the Company constitute all of the
property reasonably necessary for the conduct of the Business in the manner and
to the extent presently conducted by Axys through the Company or otherwise.
3.30 Bank Accounts
Section 3.30 of the Disclosure Schedule contains a complete and accurate
list of each deposit account or asset maintained by or on behalf of the Company
with any bank, brokerage house or other financial institution, specifying with
respect to each the name and address of the institution, the name under which
the account is maintained, the account number, and the name and title or
capacity of each Person authorized to have access thereto.
3.31 Permits.
Section 3.31 of the Disclosure Schedule contains a true and complete
list of all Permits used in, and material to, individually or in the aggregate,
the Business. All such Permits are currently effective and valid and have been
validly issued. No additional Permits are necessary to enable the Company to
conduct the Business in material compliance with all applicable federal, state
and local laws. Neither the execution, delivery or performance of this Agreement
nor the mere passage of time will have any effect on the continued validity or
sufficiency of the Permits, nor will any additional Permits be required by
virtue of the execution, delivery or performance of this Agreement to enable the
Company to conduct the Business as now operated. To the Knowledge of Axys and
the Company, there is no pending Proceeding by any Governmental or Regulatory
Authority which could affect the Permits or their sufficiency for the current
conduct of the Business or of the conduct of the Business after the Closing. The
Company has provided DPII with true and complete copies of all Permits listed in
the Disclosure Schedule.
3.32 Brokers.
Neither Axys nor the Company has retained any broker in connection with
the transactions contemplated hereunder. DPII has, and will have, no obligation
to pay any broker's, finder's, investment banker's, financial advisor's or
similar fee in connection with this Agreement or the transactions contemplated
hereby by reason of any action taken by or on behalf of Axys or the Company.
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3.33 Year 2000 Compliance.
All material Computer Systems owned, licensed or used by the Company or
Axys as they relate to the Business are Year 2000 Compliant. "Computer Systems"
means, with respect to any Person, the computer software, firmware, hardware
(whether general or special purpose), and other similar or related items of
automated, computerized or software system(s) that are owned by or licensed to
such Person. To the extent material to the operation of the Business, the
Company and Axys have obtained representations or assurances from each entity
that (x) provides data of any type that includes date information or which is
otherwise derived from, dependent on or related to date information ("Date
Data") to the Company or Axys, (y) processes in any way Date Data for the
Company or Axys, or (z) otherwise provides any material product or service to
the Company or Axys that is dependent on Year 2000 Compliance, that all of such
entity's Date Data and related software and systems that are used for, or on
behalf of, the Company or Axys and are related to the Business are Year 2000
Compliant. "Year 2000 Compliant" and "Year 2000 Compliance" mean for all dates
and times, including, without limitation, dates and times after December 31,
1999 and in the multi-century scenario, when used on a stand-alone system or in
combination with other Year 2000 Compliant software or systems: (i) the
application system functions and receives and processes dates and times
correctly without abnormal results; (ii) all date-related calculations are
correct (including, without limitation, age calculations, duration calculations
and scheduling calculations); (iii) all manipulations and comparisons of
date-related data produce correct results for all valid date values within the
scope of the application; (iv) there is no century ambiguity; (v) all reports
and displays are sorted correctly; and (vi) leap years are accounted for and
correctly identified (including, without limitation, that 2000 is recognized as
a leap year); provided, that the foregoing shall not related to output, results,
errors or abnormal terminations not attributable to date specific data. The
costs of becoming Year 2000 Compliant will not have a Material Adverse Effect on
the Business or on the operations or financial condition of the Company.
3.34 Insider Interests and Affiliate Transactions.
There are no (i) suppliers or customers of the Business in which a
stockholder holding 5% or more of any class of securities of Axys or a director,
officer or management employee of Axys or the Company holds, directly or
indirectly, a significant ownership or other interest, (ii) intercompany
liabilities or obligations between the Company, on the one hand and, Axys or any
of its Affiliates, on the other hand, that are not eliminated in the Company's
consolidated financial reporting or (iii) other material business relationships
between the Company, on the one hand, and any current or former stockholder,
director, officer or employee, on the other hand, other than in such Person's
capacity as a stockholder, director, officer or employee in the ordinary course
of business.
3.35 Material Misstatements and Omissions.
To the Knowledge of Axys and the Company, the representations and
warranties of the Company and Axys contained in this Agreement (including the
exhibits and schedules hereto) do not contain and will not contain any untrue
statement of a material fact and do not and will not
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omit to state a material fact necessary to make the statements or facts
contained herein or therein, in this context and under the circumstances in
which such statements or facts appear, not misleading.
3.36 Investment Intent.
Axys is acquiring its DPII Common Stock and its Note for its own account
and for investment, and not with a view to, or for sale in connection with any
distribution of such DPII Common Stock and its Note. Axys acknowledges that such
DPII Common Stock and its Note constitute "restricted securities" which cannot
be resold absent a registration statement for such resale under the Securities
Act of 1933 (and blue sky equivalents) or an exemption from the registration
requirements thereof. Axys acknowledges that the DPII Common Stock and Note it
receives will be subject to Rule 145, that Axys was an affiliate of the Company,
and that after the Merger Axys will be an affiliate of DPII for Rule 144
purposes.
Article IV
REPRESENTATIONS AND WARRANTIES OF DPII
DPII represents and warrants to Axys, except for the matters set forth
on the DPII Disclosure Schedule furnished to Axys, which matters shall be deemed
exceptions to such representations and warranties as if made hereunder, as
follows:
4.1 Organization of the Company.
DPII is a corporation duly organized, validly existing, and in good
standing under the laws of the State of California. DPII is duly authorized to
conduct business and is in good standing in each jurisdiction where such
qualification is required except for any jurisdiction where failure so to
qualify would not have a Material Adverse Effect upon DPII. DPII has full power
and authority, and holds all Permits and authorizations necessary to carry on
the DPII Business and to own and use the DPII Assets and Properties except where
the failure to have such power and authority or to hold such Permit or
authorization would not have a Material Adverse Effect on the DPII Business.
DPII has delivered to Axys correct and complete copies of its charter documents
and organizational documents, each as amended to date.
4.2 Capital Stock of DPII.
The authorized capital stock of DPII consists of 12,000,000 shares of
common stock, of which 1,789,068 shares are issued and outstanding, 2,500,000
shares of Series A Preferred Stock, of which 2,000,000 are issued and
outstanding, 2,000,000 shares of Series B Preferred Stock, of which 2,000,000
are issued and outstanding, 333,333 shares of Series C Preferred Stock, of which
333,333 are issued and outstanding, 2,500,000 shares of Series D Preferred
Stock, of which 2,228,945 are issued and outstanding, and 1,700,000 shares of
Series E Preferred Stock, 1,392,503 of which are issued and outstanding. The
outstanding shares of DPII capital stock are duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding
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subscriptions, options, warrants, calls, commitments or other rights of any kind
for the purchase or acquisition of, nor any securities convertible or
exchangeable for, any capital stock of DPII or any agreements or offers to issue
any such subscriptions, options, warrants, calls, commitments or other rights.
4.3 [RESERVED].
4.4 [RESERVED].
4.5 Authority of DPII.
DPII has all necessary power and authority and has taken all action
necessary to enter into this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder and no other
proceedings on the part of DPII are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. The vote of, or consent by, the
holders of each class or series of capital stock or indebtedness issued by DPII
necessary to authorize the execution and delivery by DPII of this Agreement or
the consummation of this Agreement has been obtained. This Agreement has been
duly and validly executed and delivered by DPII and constitutes a legal, valid
and binding obligation of DPII enforceable against DPII in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
DPII does not, directly or indirectly, beneficially own or own of record
any equity securities of or any other equity interest in, any other Person or
have any other equity investment or other ownership interest in any other
Person.
4.6 No Conflicts.
The execution and delivery by DPII of this Agreement do not, and the
performance by DPII of its obligations under this Agreement and the consummation
of the transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of DPII;
(b) conflict with or result in a violation or breach of any term or
provision of any law, Order, Permit, statute, rule or regulation applicable to
DPII, the DPII Business, or the DPII Assets and Properties;
(c) result in a breach of, or default under (or give rise to right
of termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement, lease
or other similar instrument or obligation to which
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DPII, any of its DPII Assets and Properties or any shares of DPII's capital
stock may be bound, except for such breaches or defaults as set forth on the
DPII Disclosure Schedule as to which requisite waivers or consents will have
been obtained by the Closing Date; or
(d) result in an imposition or creation of any Encumbrance on the
DPII Business, the DPII Assets and Properties or any DPII capital stock.
4.7 Consents and Governmental Approvals and Filings.
No consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other Persons on the part of DPII is
required in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby or to
enable DPII to conduct the DPII Business after the Closing Date in a manner
consistent with that in which the DPII Business is presently conducted.
4.8 Books and Records.
The minute books and other corporate records of DPII contain a true and
complete record, in all material respects, of all actions taken at all meetings
and by all written consents in lieu of meetings of the stockholders, the board
of directors and committees of the board of directors of DPII. The stock
transfer ledgers and other similar records of DPII accurately reflect all
issuances and record transfers in the capital stock of DPII. The books and
records of DPII, taken as a whole, fairly reflect all of its transactions,
properties, assets and liabilities. Except as specifically noted therein and
except for revenue items from customers that may be non-recurring, there have
been no material, special or non-recurring items of income or expense with
respect to DPII, during the periods covered by the DPII Financial Statements,
and the Interim DPII Balance Sheet does not reflect any write-up or revaluation
increasing the book value of any assets of DPII, except as specifically
disclosed in the DPII Financial Statements or in the notes thereto. Except as
specifically noted therein, the DPII Financial Statements reflect all
adjustments necessary for a fair presentation of the financial condition and
results of operations of DPII. The other Books and Records of DPII are in all
material respects true and correct and, taken as a whole, are complete.
4.9 DPII Financial Statements.
DPII has previously delivered to Axys the DPII Financial Statements.
Such DPII Financial Statements (i) are true, correct and complete, (ii) have
been prepared in accordance with the Books and Records of DPII in a consistent
manner throughout all of the periods indicated, (iii) have been prepared in
conformity with GAAP, consistently applied, and (iv) fairly present the
financial condition and results of operations of DPII as of the respective dates
thereof and for the periods covered thereby; provided, that the Interim DPII
Balance Sheet is subject to normal year-end adjustments and lack footnotes and
certain other presentation items.
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4.10 Absence of Changes.
Except for the execution and delivery of this Agreement and the
transactions to take place pursuant hereto on or prior to the Closing Date,
since the Interim Balance Sheet Date, there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to result in a Material Adverse Effect
on DPII or the DPII Business and since the Interim Balance Sheet Date, DPII has
not taken any action which if taken after the date of this Agreement, without
Axys' consent, would violate Section 7.3 hereof.
4.11 No Undisclosed Liabilities.
Except as disclosed in the DPII Financial Statements, there are no
Liabilities, nor any basis for any claim against DPII for any such Liabilities,
relating to or affecting DPII or any of the DPII Assets and Properties, other
than Liabilities incurred after the end of the period covered by the Interim
DPII Financial Statements in the Ordinary Course of Business which have not had,
and could not reasonably be expected to result in, individually or in the
aggregate, a Material Adverse Effect on DPII.
4.12 Tangible Personal Property.
DPII is in possession of and has good and marketable title to, or has
valid leasehold interests in or valid rights under written agreements to use,
all DPII Assets and Properties constituting tangible personal property
(including inventory) reflected on the Interim DPII Balance Sheet and any
tangible personal property acquired since that date other than tangible personal
property disposed of since such date in the Ordinary Course of Business. All
such DPII Assets and Properties are (if it has a cost or fair market value above
$1,000) listed in Section 4.12 of the DPII Disclosure Schedule and are free and
clear of all Encumbrances, other than Permitted Encumbrances.
4.13 Benefit Plans; ERISA.
(a) The DPII Disclosure Schedule lists each Benefit Plan together
with a brief description of the type of plan and benefit provided thereunder.
DPII has made no commitment, proposal, or communication to employees regarding
the creation of an additional Plan or any increase in benefits under any Benefit
Plan. DPII has provided to Axys (i) a copy of each Benefit Plan (including
amendments) or, where substantially similar arrangements exist, a sample copy
and a list of persons participating in such arrangement, (ii) the three (3) most
recent annual reports on the Form 5500 series for each Benefit Plan required to
file such report, (iii) the most recent IRS determination letter with respect to
each Qualified Plan and (iv) the most recent trustee's report for each Benefit
Plan funded through a trust.
(b) Neither DPII, an ERISA Affiliate nor predecessor thereof has
ever maintained, contributed to or been obligated to contribute to any Defined
Benefit Plan or multiemployer plan (as defined in Section (3)(37) or 4001(a)(3)
of ERISA) and no condition
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exists that presents a material risk to DPII or an ERISA Affiliate of incurring
a liability under Title IV of ERISA.
(c) Each Benefit Plan has been operated and administered in
accordance with its terms and, as of the Closing Date, will be in full
compliance, in form and operation, with all applicable laws (including but not
limited to ERISA and the Code) except to the extent a failure to do so would not
have a Material Adverse Effect.
(d) Each Qualified Plan has received a determination letter from
the Internal Revenue Service confirming that it qualifies under Section 401(a)
of the Code and nothing has occurred since the issuance of that letter which
would adversely affect such qualified status or the plan sponsor's ability to
rely on such determination letter.
(e) No Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of DPII or any ERISA Affiliate beyond their termination of
service (other than (i) coverage mandated by applicable law, (ii) benefits under
a Qualified Plan, (iii) deferred compensation benefits accrued as liabilities on
the books of DPII or any ERISA Affiliate or (iv) benefits the full cost of which
is borne by any current or former employee (or his or her beneficiary)).
(f) The consummation of the transactions contemplated by this
Agreement will not, either immediately or upon the occurrence of any event
thereafter, (i) entitle any current or former employee or officer or director of
DPII or any ERISA Affiliate to severance pay, unemployment compensation or any
other payment, or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation otherwise due any such individual.
(g) There are no pending or, to the Knowledge of DPII, anticipated
or threatened claims by or on behalf of any Benefit Plan, by any employee or
beneficiary covered under any such Benefit Plan, or otherwise involving any such
Benefit Plan (other than routine claims for benefits).
4.14 Real Property.
DPII does not own any real property related to the DPII Business. The
DPII Disclosure Schedule contains a complete and accurate legal description of
(i) each parcel of DPII Real Property leased by DPII (as lessee or lessor) (the
"DPII Real Property") and (ii) all Encumbrances (other than Permitted
Encumbrances) relating to or affecting the DPII Real Property. DPII has a valid
leasehold interest in all real property used in or relating to the conduct of
the DPII Business, free and clear of all Encumbrances other than Permitted
Encumbrances. DPII has rights of ingress and egress with respect to the DPII
Real Property, and all buildings, structures, facilities, fixtures and other
improvements thereon material for the operation of the DPII Business. There is
no pending or, to the Knowledge of DPII, threatened condemnation of any of the
respective parcels of DPII Real Property or any part thereof. To the Knowledge
of DPII, none of such DPII Real Property, buildings, structures, facilities,
fixtures or other improvements, or the use thereof, contravenes or violates any
building, zoning, fire protection,
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administrative, occupational safety and health or other applicable law, rule, or
regulation. Each lease with respect to the DPII Real Property is a legal, valid
and binding agreement of DPII subsisting in full force and effect enforceable in
accordance with its terms, and there is no, and DPII has not received notice of
any, default (or any condition or event which, after notice or lapse of time or
both, would constitute a default) thereunder. DPII does not owe any brokerage
commissions with respect to any such DPII Real Property.
4.15 Intellectual Property Rights.
(a) Section 4.15(a) of the DPII Disclosure Schedule lists (i) all
those United States, international and foreign (A) patents and patent
applications (including provisional applications), (B) registered trademarks,
applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks and (C) registered
copyrights and applications for copyright registration that are owned by DPII
and are used in or currently contemplated to be used in the DPII Business
(collectively, the "DPII Registered Intellectual Property") and (ii) all
licenses, sublicenses and other agreements to use Intellectual Property rights
owned by any third party which are not generally commercially available and are
currently used by DPII in the conduct of its DPII Business. DPII has delivered
to Axys complete and accurate copies of each agreement, registration and other
material documents relating to the DPII Registered Intellectual Property set
forth in Section 4.15(a) of the DPII Disclosure Schedule.
(b) DPII owns or possesses adequate and enforceable licenses, trade
secrets, know-how, patents, copyrights, trademarks, service marks, brand names
and trade names and other rights of every kind, and all applications for any of
the foregoing, necessary for, or used in the operation of, the DPII Business as
now conducted, and such ownership, possession or license does not conflict with
or infringe on the rights of third parties with respect to the DPII Intellectual
Property. Entry into this Agreement and consummation of the transactions
contemplated hereby will not impair DPII's ownership or use of DPII Intellectual
Property. No Person has a right to receive a royalty or similar payment directly
or indirectly from DPII in respect of any item of DPII Intellectual Property
pursuant to any contractual arrangements entered into by DPII. DPII has not
received any notice that its or any third party's use of any item of DPII
Intellectual Property is infringing upon or otherwise violating the rights of
DPII or any third party in or to such DPII Intellectual Property, and no notices
have been received by, and to the knowledge of DPII, no proceedings have been
instituted against, DPII alleging that use or proposed use of any item of DPII
Intellectual Property by DPII or any third party infringes upon or otherwise
violates any rights of DPII or a third party in or to such DPII Intellectual
Property.
(c) With respect to (i) each item of DPII Registered Intellectual
Property, necessary registration, maintenance and renewal fees in connection
with such DPII Registered Intellectual Property have been made and all necessary
documents and certificates in connection with such DPII Registered Intellectual
Property have been filed with the relevant patent authorities in the United
States for the purposes of maintaining such DPII Registered Intellectual
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Property and (ii) those patents set forth in Section 4.15(a) of the DPII
Disclosure Schedule, no information material to patentability under applicable
law has been knowingly withheld from the examining office in a manner that would
constitute fraud or inequitable conduct. DPII owns and has good and exclusive
title free and clear of any Encumbrance to all DPII Registered Intellectual
Property listed in Section 4.15(a) of the DPII Disclosure Schedule.
(d) To the extent that any work, invention, or material has been
developed or created by a third party for DPII, DPII has a written agreement
with such third party with respect thereto and DPII thereby has obtained
ownership of, and is the exclusive owner of, or has a valid license to use, all
DPII Intellectual Property in such work, material or invention by operation of
law or by valid assignment or by agreement, as the case may be.
(e) Section 4.15(e) of the DPII Disclosure Schedule lists all
contracts, licenses and agreements to which DPII is a party that are currently
in effect (i) with respect to DPII Intellectual Property licensed (or subject to
an option or similar right to license) to any third party; or (ii) pursuant to
which a third party has licensed or transferred any DPII Intellectual Property
to DPII other than customary confidentiality agreements and material transfer
agreements entered into in the Ordinary Course of Business of DPII.
(f) The contracts, licenses and agreements listed in Section
4.15(a) and (e) are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements listed in Section 4.15(a) and (e) of the DPII
Disclosure Schedule. DPII is in material compliance with, and has not materially
breached any term any of such contracts, licenses and agreements listed in
Section 4.15(a) and (e) of the DPII Disclosure Schedule and, to the Knowledge of
DPII, all other parties to such contracts, licenses and agreements are in
compliance with, and have not breached any term of, such contracts, licenses and
agreements. Following the Closing Date, DPII will be permitted to exercise all
of DPII's rights under the contracts, licenses and agreements listed in Sections
4.15(a) and (e) of the DPII Disclosure Schedule to the same extent DPII would
have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional funds other than ongoing
fees, royalties or payments which DPII would otherwise be required to pay under
existing agreements.
(g) Section 4.15(g) lists all contracts, licenses and agreements
between DPII and any third party wherein or whereby DPII has agreed to, or
assumed, any obligation or duty to warrant, indemnify, hold harmless or
otherwise assume or incur any obligation or liability with respect to the
infringement or misappropriation by DPII or such third party of the Intellectual
Property of any third party.
4.16 Proprietary Information of Third Parties.
DPII has not received notice from a third party claiming nor, to the
Knowledge of DPII does any third party have reason to claim that any person
employed by or affiliated with DPII in connection with and during DPII's
ownership and operation of the DPII Business has (i) violated
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or may be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party, or (iii)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from DPII which suggests that such a claim might be
contemplated. To the Knowledge of DPII, no person employed by or affiliated with
DPII in connection with and during DPII's ownership and operation of the DPII
Business has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer and no person employed by or
affiliated with DPII in connection with and during DPII's ownership and
operation of the DPII Business has violated any confidential relationship which
such person may have had with any third party, in connection with the DPII
Business, and DPII has no reason to believe there will be any such employment or
violation.
4.17 Litigation.
There are no Proceedings, including bankruptcy proceedings, pending or,
to the Knowledge of DPII, there are no investigations or Proceedings threatened
or anticipated against, relating to or affecting (i) DPII or the DPII Assets and
Properties, (ii) DPII and its business and properties to the extent the same
could be reasonably expected to adversely effect the ability of DPII to
consummate the transactions contemplated hereby, or (iii) the transactions
contemplated by this Agreement. To the Knowledge of DPII, DPII is not in default
with respect to any Order, and there are no unsatisfied judgments against DPII.
4.18 Compliance with Law.
(a) Except as otherwise provided in Section 4.20 below, DPII is in
compliance with all applicable laws, statutes, Orders, ordinances and
regulations, whether federal, state, local or foreign, except where the failure
to comply, in each instance and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect on DPII. DPII has not received
any written notice to the effect that, or otherwise has been advised that, DPII
is not in compliance with any of such laws, statutes, Orders, ordinances or
regulations, where the failure to comply could reasonably be expected to result
in a Material Adverse Effect on DPII.
4.19 Contracts.
(a) Section 4.19(a) of the DPII Disclosure Schedule contains a true
and complete list of each of the following written or oral contracts, agreements
or other arrangements (each, a "DPII Material Contract") to which DPII is a
party or by which any of the DPII Assets and Properties are bound (and, to the
extent oral, accurately describes the terms of such contracts, agreements and
arrangements):
(i) all collective bargaining or similar labor agreements;
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(ii) all contracts for the employment of any officer,
employee or other person or entity on a full time, part time, consulting or
other basis;
(iii) all loan agreements, indentures, debentures, notes or
letters of credit relating to the borrowing of money or to mortgaging, pledging
or otherwise placing a lien on any material asset or material group of assets of
DPII;
(iv) all guarantees of any obligation;
(v) all leases or agreements under which DPII is lessee or
lessor of, or holds, or operates, any property, real or personal, owned by any
other party;
(vi) all commitments, contracts, sales contracts, purchase
orders, mortgage agreements or groups of related agreements with the same party
or any group or affiliated parties which require or may in the future require
payment of any consideration by DPII of an amount in excess of $25,000 and which
cannot be terminated within thirty (30) days after giving notice of termination
without resulting in any cost or penalty to DPII;
(vii) all license agreements, distribution agreements or any
other agreements involving any DPII Intellectual Property;
(viii) all subscription or registration rights agreements or
any other agreements related to the equity ownership of DPII;
(ix) all contracts or commitments that in any way restrict
DPII from carrying on the DPII Business anywhere in the world; and
(x) all other contracts and agreements that (A) involve the
payment or potential payment, pursuant to the terms of any such contract or
agreement, by DPII or the other party of an amount in excess of $25,000 and (B)
cannot be terminated within thirty (30) days after giving notice of termination
without resulting in any cost or penalty to DPII.
(b) Each contract, agreement or other arrangement disclosed in
Section 4.19(a) of the DPII Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding agreement, enforceable by DPII in
accordance with its terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
and (b) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies. DPII has performed all of its required
material obligations under, and is not materially in violation or breach of or
default under, any such contract, agreement or arrangement. To the Knowledge of
DPII, the other parties to any such contract, agreement or arrangement are not
in violation or breach of or default under any such contract, agreement or
arrangement. None of the present employees, officers, directors or shareholders
of DPII is, and none of the former employees, officers or directors of DPII
while providing services for DPII was, a party to any oral or written contract
or agreement prohibiting any of them from freely competing with other parties or
engaging in the DPII Business as now operated.
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4.20 Environmental Matters.
(a) As of the Effective Date DPII is in material compliance with
all applicable Environmental Laws. DPII has not received any written
communication whether from a Governmental or Regulatory Authority or citizen
group, that alleges that DPII or any of the DPII Assets and Properties used in
the DPII Business are not in material compliance with Environmental Laws. All
Permits and other governmental authorizations currently held by DPII or under
which it operates pursuant to Environmental Laws (collectively, "DPII
Environmental Permits") are identified, together with their respective
expiration dates, in Section 4.20(a) of the DPII Disclosure Schedule and, to the
knowledge of DPII, currently represent all DPII Environmental Permits necessary
for the conduct of the DPII Business as currently conducted. DPII has not been
notified by any relevant Governmental or Regulatory Authority that any DPII
Environmental Permit will be modified, suspended or revoked or cannot be renewed
in the Ordinary Course of Business, and, to the Knowledge of DPII, no DPII
Environmental Permit will be modified, suspended or revoked, or cannot be
renewed in the Ordinary Course of Business of DPII.
(b) As of the Effective Date there is no Environmental Notice that
is (i) pending or, to the Knowledge of DPII, threatened in writing against DPII
or (ii) to the Knowledge of DPII, pending or threatened in writing against any
Person whose liability for such Environmental Notice may have been retained or
assumed by or could reasonably be imputed or attributed to DPII.
(c) To the Knowledge of DPII there are no past or present actions,
activities, circumstances, conditions, events or incidents arising from the
operation, ownership or use of any property currently or formerly owned,
operated or used by DPII (or any entity formerly an Affiliate of DPII),
including, without limitation, the release, emission, discharge or disposal of
any Material into the Environment, that (i) could reasonably be expected to
result in the incurrence by DPII of significant costs under Environmental Laws
or (ii) could reasonably be expected to form the basis of any Environmental
Notice against or with respect to DPII or against any Person whose liability for
any Environmental Notice may have been retained or assumed by or could be
imputed or attributed to DPII.
(d) Without in any way limiting the generality of the foregoing,
(i) all underground storage tanks, and the capacity and contents of such tanks,
located on property at any time owned, leased or used by DPII are identified in
Section 4.20(d) of the DPII Disclosure Schedule, (ii) to the Knowledge of DPII
there is no asbestos contained in or forming part of any building, building
component, structure or office space owned, leased or used by DPII, (iii) to the
Knowledge of DPII no polychlorinated biphenyls (PCB's) are used, disposed of or
stored on any property owned, leased or used by DPII and (iv) all locations
currently or formerly owned, leased or used by DPII (or any former Affiliate of
DPII) are identified and described in Section 4.20(d) the DPII Disclosure
Schedule.
(e) DPII has heretofore delivered to Axys correct and complete
copies of all environmental studies, assessments, reports, results of
investigations and audits of the DPII
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Assets and Properties, and made available similar information that is in the
possession of DPII regarding environmental matters pertaining to the operations
of the DPII Business or the environmental condition of real property currently
or previously owned, leased or operated by DPII or used in the DPII Business.
(f) By virtue of the transactions set forth herein and contemplated
hereby, or as a condition to the effectiveness of any transactions contemplated
hereby, DPII is not required under any Environmental Laws to undertake (i) the
performance of a site assessment for Materials, (ii) the removal or remediation
of Materials, (iii) the giving of notice to or receiving the approval of any
Governmental Authority, or (iv) the recording or delivery to other persons of
any disclosure document or statement pertaining to environmental matters.
4.21 Inventory.
The inventory of DPII is in good and merchantable condition, and
suitable and usable at its carrying value in the Ordinary Course of Business for
the purposes for which intended and the value of such inventory is accurately
reflected in the books and records of DPII in accordance with GAAP in a
consistent manner through all relevant periods. To the knowledge of DPII, there
is no material adverse condition affecting the supply of materials available to
DPII. To the Knowledge of DPII, no supplier of DPII is in violation of any
federal, state, local or foreign law, ordinance, regulation or Order, which
violation has a Material Adverse Effect on such supplier's ability to produce or
supply DPII with any product necessary for the operations of the DPII Business.
4.22 Plants, Buildings, Structures, Facilities and Equipment.
(a) All plants, buildings, structures, facilities and equipment
used by DPII in the conduct of its business are structurally sound with no known
material defects and are in good operating condition and repair (subject to
normal wear and tear) so as to permit the operation of the DPII Business as
presently conducted;
(b) No such plant, building, structure, facility or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs which are not material in nature or cost; and
(c) With respect to each plant, building, structure, facility or
item of equipment, DPII has not received notification that it is in violation,
in any material respect, of any applicable building, zoning, subdivision, fire
protection, health or other law, Order, ordinance or regulation and no such
violation exists.
4.23 Insurance.
(a) Set forth in Section 4.23 of the Disclosure Schedule is a
complete and accurate list of all primary, excess and umbrella policies, bonds
and other forms of insurance currently owned or held by or on behalf of and/or
providing insurance coverage to DPII or the
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DPII Assets and Properties (or any of DPII's directors, officers, salespersons,
agents or employees), including the following information for each such policy:
type(s) of insurance coverage provided; per occurrence and annual aggregate
deductibles or self-insured retentions; per occurrence and annual aggregate
limits of liability and the extent, if any, to which the limits of liability
have been exhausted. All policies, bonds and other forms of insurance set forth
in Section 4.23 of the DPII Disclosure Schedule are in full force and effect,
and with respect to such policies, all premiums currently payable or previously
due have been paid, and no notice of cancellation or termination has been
received with respect to any such policy. All such policies, bonds and other
forms of insurance are sufficient for compliance with all requirements of law
and all agreements to which DPII is a party or otherwise bound, and are valid,
outstanding, collectible and enforceable policies and, to the Knowledge of DPII,
provide adequate insurance coverage for DPII and the DPII Business and DPII
Assets and Properties.
4.24 Taxes.
(a) DPII has timely filed with the appropriate Taxing Authorities
all income and franchise Tax Returns and all other Tax Returns relating to DPII,
DPI Assets and Properties and Tax withholding obligations of DPII required to be
filed by or with respect to it (taking into account applicable extensions). Each
such Tax Return was correct and complete in all material respects when filed.
DPII has paid in full (or had paid on its behalf), or has made provision in the
DPII Financial Statements for, all Taxes which are due or claimed to be due by
any Taxing Authority (whether or not shown as due on any Tax Return), and has
made (or has had made on its behalf) all required estimated payments of Taxes.
DPII has not incurred any liability for Taxes other than in the Ordinary Course
of Business since the date of the most recent DPII Financial Statements. There
are no liens for Taxes upon DPII Assets and Properties except for statutory
liens for current Taxes not yet due.
(b) None of DPII or any subsidiaries of DPII has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed, or waived any statute of limitations for, or agreed to any
extension of time with respect to, the assessment of Taxes. DPII was formed on
March 22, 1995. Neither DPII nor any of its subsidiaries has received any notice
of deficiency or assessment from any Taxing Authority with respect to
liabilities for Taxes which have not been fully paid or finally settled.
Further, no state of facts exists or has existed which would constitute grounds
for the assessment of any liability for Taxes of or with respect to DPII or any
of its subsidiaries for periods prior to the Closing Date which have not been
audited by any Taxing Authority. None of DPII, its officers or directors, any
subsidiary of DPII, its officers or directors, is aware of any information which
has caused or should cause any of them to believe that an audit by any Taxing
Authority of Taxes of or with respect to DPII or any of its subsidiaries may be
forthcoming. No claim has ever been made by an authority in a jurisdiction where
DPII or any of its subsidiaries does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
(c) DPII and each of its subsidiaries has withheld and paid over to
the appropriate Taxing Authorities all Taxes required to have been so withheld
and paid over with
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respect to amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other Person for all periods under all applicable laws
relating to the withholding of Taxes.
(d) Neither DPII nor any of its subsidiaries has any liability for
the Taxes of any other Person (i) under Treasury Regulations Section 1.1502-6
(or any similar provision of state, local, or foreign law) other than as a
member of the DPII affiliated group, (ii) as a transferee or successor, (iii) by
contract, or (iv) otherwise.
(e) Neither DPII nor any of its subsidiaries has filed or will file
prior to the Closing a consent under Section 341(f) of the Code. Neither DPII
nor any of its subsidiaries is obligated to make any payments, or is a party to
any agreement (whether written or oral) that could obligate it to make any
payments that will not be deductible under Section 162(m) or Section 280G of the
Code, whether paid prior to or after the Closing. Neither DPII, nor any of its
subsidiaries is or has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code.
(f) Neither DPII nor any of its subsidiaries has agreed, and DPII
or such subsidiary is not required, to make any adjustment pursuant to Section
481(a) of the Code (or any predecessor provision) by reason of any change in any
accounting method or change in basis for determining the reserves of DPII or
such subsidiary or otherwise, and neither DPII nor any of its subsidiaries has
any application pending with any Taxing Authority requesting permission to make
any changes in any accounting method or in the basis for determining its
reserves. The IRS has not proposed any such adjustment or change in accounting
method or in the basis of determining its reserves.
(g) Neither DPII nor any of its subsidiaries has any outstanding
balances of deferred gain or loss accounts related to any "intercompany
transactions" (as defined in Treasury Regulations Section 1.1502-13(b)) to which
DPII or any of its subsidiaries was a party.
(h) DPII will file for the Post-Closing Period, as a common parent
corporation of an Affiliated Group, a consolidated return for federal income tax
purposes on behalf of itself and the Company, and the Company will be an
"includible corporation" (within the meaning of Section 1504(b) of the Code) in
such Affiliated Group.
(i) There is no power of attorney given by or binding upon DPII or
any of its subsidiaries with respect to Taxes for any period for which the
applicable statute of limitations (including any waivers or extensions) has not
expired as of the date of this Agreement or will not have expired by the Closing
Date.
(j) Neither DPII nor any of its subsidiaries is a party to or
otherwise subject to any arrangement entered into in anticipation of the
Closing, which is not in accordance with past practice and not required by this
Agreement and (i) which has the effect of or gives rise to the recognition of a
deduction or loss before the Closing Date and a corresponding recognition of
taxable income or gain after the Closing Date, or (ii) would reasonably be
expected to have the
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effect of or give rise to the recognition of taxable income or gain by DPII or
such subsidiary after the Closing Date without the receipt of or entitlement to
a corresponding amount of cash.
4.25 Labor and Employment Relations.
To the Knowledge of DPII , no officer, DPII key employee or group of ten
(10) or more employees of DPII has or have any plans to terminate his, her or
their employment with DPII. DPII is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association covering
any of its employees, and to the Knowledge of DPII, there are no attempts to
organize any of DPII's employees by any person, unit or group seeking to act as
their bargaining agent. DPII has complied in all material respects with all
applicable laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining,
discrimination against race, color, national origin, religious creed, physical
or mental disability, sex, age, ancestry, medical condition, marital status or
sexual orientation, and the withholding and payment of social security and other
taxes. There are no pending or, to the Knowledge of DPII , threatened charges
(by employees, their representatives or governmental authorities) of unfair
labor practices or of employment discrimination or of any other wrongful action
with respect to any aspect of employment of any person employed or formerly
employed by DPII. No union representation elections relating to DPII's employees
have been scheduled by any Governmental or Regulatory Authority, no
organizational effort is being made with respect to any of such employees, and
to the Knowledge of DPII, there is no investigation of DPII's employment
policies or practices by any Governmental or Regulatory Authority pending or
threatened. DPII is not currently, and in the past has not been, involved in
labor negotiations with any unit or group seeking to become the bargaining unit
for any employees of DPII. DPII has never experienced any work stoppages and to
the Knowledge of DPII, no work stoppage has been threatened or is planned.
4.26 Certain Employees.
DPII has provided to Axys under cover of a letter dated as of the date
hereof, a list of the names of DPII's employees and consultants as of the date
hereof involved in the senior management of the DPII Business, together with the
title or job classification of each such person and the total compensation (with
wages and bonuses, if any, separately detailed) paid in 1998 and 1999 and to
date in 2000 (if applicable) and the current rate of pay for each such person on
the date of this Agreement (the "DPII Employee Letter"). The DPII Employee
Letter shall specifically indicate the employees and consultants hired or
retained since June 30, 1999 or which DPII has agreed to hire or retain. None of
such persons has an employment agreement or understanding, whether oral or
written, with DPII which is not terminable on notice by DPII without cost or
other liability to DPII. From December 31, 1999, to the date hereof, inclusive,
DPII has not fired, terminated or otherwise discharged any employee or
consultant with total expected annual compensation (including bonus potential)
in excess of $30,000, or entered into (or agreed to enter into) any employment,
consulting or similar agreement, with a value in excess of $30,000.
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4.27 Absence of Certain Changes. Since December 31, 1999 DPII has
conducted the DPII Business in the ordinary and usual course consistent with
past practice, and there has not been any of the following:
(a) any change or amendment to the certificate or articles of
incorporation, bylaws or other organizational documents of DPII;
(b) any issuance or sale or purchase or redemption of any equity
securities or of any derivative securities of DPII, other than pursuant to this
Agreement;
(c) any dividend or other distribution declared, set aside, paid or
made with respect to its equity securities or any direct or indirect redemption,
purchase or other acquisition of such equity securities by DPII;
(d) any acquisition or disposition of assets by DPII having a fair
value or for a purchase price in excess of $100,000, in the aggregate, other
than acquisitions or dispositions made in the ordinary course of business
consistent with past practice;
(e) any incurrence of any Liabilities except Liabilities incurred
in the ordinary course of business and consistent with past practice, none of
which, in any case or in the aggregate, are material to the financial condition
or operating results of DPII;
(f) any payment, discharge or satisfaction of any Liabilities other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of Liabilities and obligations reflected or
reserved against in the DPII Financial Statements or incurred in the ordinary
course of business and consistent with past practice;
(g) any commitment, agreement, settlement or transaction entered
into, amended, or terminated (or any waiver of any rights or remedies under any
of the foregoing), other than in the ordinary course of business consistent with
past practice;
(h) any amendment of any mortgage, Encumbrance, lease agreement,
Permit, loan agreement, indenture or other agreement, instrument or document,
other than in the ordinary course of business consistent with past practice;
(i) any default, event of default or breach (or any event which,
with notice or the passage of time or both, would constitute a default, event of
default or breach) by DPII of any credit, financing or other agreement or
instrument relating to any material Indebtedness;
(j) any sale, assignment, transfer or license of any patents,
patent applications, designs, logos, trademarks, trademark applications,
servicemarks, servicemark applications, trade names, Internet domain names,
copyrights, trade secrets, licenses, know-how, formulae, models, information,
software and processes;
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(k) any damage, destruction, theft or other casualty loss that is
reasonably likely to have a Material Adverse Effect;
(l) any entry into or amendment of any Material Contract;
(m) any entry into or amendment of any employment or severance
compensation agreement or consulting or similar agreement with, or any increase
in the compensation or benefits payable or to become payable by DPII to any
employee of DPII (other than agreements terminable without penalty or similar
payment by DPII on not more than 30 days' notice and any other increases in
compensation payable or to become payable to employees (other than directors or
officers) in the ordinary course of business consistent with past practice);
(n) any write down or write up in the value of any inventories
(including write-downs by reason of shrinkage or mark-down), any change, other
than in the ordinary course of business consistent with past practice, in the
standard costs utilized in determining the value of any inventories or any
failure to replenish any inventories in a normal and customary manner consistent
with its prior practice and prudent business practices prevailing in the
industry, or made any purchase commitment in excess of the normal, ordinary and
usual requirements of its business or at any price in excess of the then current
market price or upon terms and conditions more onerous than those usual and
customary in the industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with its prior practice and
prudent business practices prevailing in the industry;
(o) any change in the financial or tax accounting methods,
principles or practices of DPII for financial or tax accounting purposes, except
as required by GAAP or applicable law;
(p) any adoption of a plan of or any agreement or arrangement with
respect to or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of DPII;
(q) any change, condition, occurrence, circumstance or other event
that, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect;
(r) any settlement of any material Tax audit, the making or
changing of any material Tax election or the filing of any amended Tax Return;
or
(s) any commitment or agreement to do any of the foregoing, except
as otherwise required or expressly permitted by this Agreement.
4.28 Customers/Supplier.
DPII has previously provided to Axys a true and correct list of DPII's
ten largest customers and gross revenues from such customers during the 1998
fiscal year and the 1999
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fiscal year and for the three-month period ended March 31, 2000 (measured by
revenues to the DPII Business). Since January 1, 1999, no such customer has
stopped doing business with DPII, and to the Knowledge of DPII, no such customer
has advised DPII that it is not continuing, or is terminating, or is making an
adverse change with respect to its business with DPII and to the Knowledge of
DPII, the consummation of the transactions contemplated by the Agreement will
not adversely affect any such relationships. To the Knowledge of DPII, DPII and
the DPII Business are not dependent upon any single vendor or group of
affiliated vendors such that the discontinuance of supply or service from such
vendor or vendors would have, or could be reasonably expected to have, a
Material Adverse Effect on DPII or the DPII Business.
4.29 Necessary Property.
All of the DPII Real Property and DPII Assets and Properties owned or
leased by DPII and the DPII Intellectual Property listed on the DPII Disclosure
Schedule owned by or licensed to DPII constitute all of the property reasonably
necessary for the conduct of the DPII Business in the manner and to the extent
presently conducted by DPII.
4.30 [reserved]
4.31 Permits.
Section 4.31 of the DPII Disclosure Schedule contains a true and
complete list of all Permits used in, and material to, individually or in the
aggregate, the DPII Business. All such Permits are currently effective and valid
and have been validly issued. No additional Permits are necessary to enable DPII
to conduct the DPII Business in material compliance with all applicable federal,
state and local laws. Neither the execution, delivery or performance of this
Agreement nor the mere passage of time will have any effect on the continued
validity or sufficiency of the Permits, nor will any additional Permits be
required by virtue of the execution, delivery or performance of this Agreement
to enable DPII to conduct the Business as now operated. To the Knowledge of
DPII, there is no pending Proceeding by any Governmental or Regulatory Authority
which could affect the Permits or their sufficiency for the current conduct of
the Business or of the conduct of the DPII Business after the Closing. DPII has
provided Axys with true and complete copies of all Permits listed in the DPII
Disclosure Schedule.
4.32 Brokers.
DPII has not retained any broker in connection with the transactions
contemplated hereunder. Axys has, and will have, no obligation to pay any
broker's, finder's, investment banker's, financial advisor's or similar fee in
connection with this Agreement or the transactions contemplated hereby by reason
of any action taken by or on behalf of DPII.
4.33 Year 2000 Compliance.
All material Computer Systems owned, licensed or used by DPII as they
relate to the DPII Business are Year 2000 Compliant. To the extent material to
the operation of the DPII
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Business, DPII has obtained representations or assurances from each entity that
(x) provides Date Data to DPII, (y) processes in any way Date Data for DPII, or
(z) otherwise provides any material product or service to DPII that is dependent
on Year 2000 Compliance, that all of such entity's Date Data and related
software and systems that are used for, or on behalf of, DPII, and are related
to the DPII Business are Year 2000 Compliant. The costs of becoming Year 2000
Compliant will not have a Material Adverse Effect on the DPII Business or on the
operations or financial condition of DPII.
4.34 Insider Interests and Affiliate Transactions.
There are no (i) suppliers or customers of the Business in which a
stockholder holding 5% or more of any class of securities of DPII or a director,
officer or management employee of holds, directly or indirectly, a significant
ownership or other interest, (ii) intercompany liabilities or obligations
between DPII, on the one hand and, any of its Affiliates, on the other hand,
that are not eliminated in DPII's consolidated financial reporting or (iii)
other material business relationships between DPII, on the one hand, and any
current or former stockholder, director, officer or employee, on the other hand,
other than in such Person's capacity as a stockholder, director, officer or
employee in the ordinary course of business.
4.35 Material Misstatements and Omissions.
To the Knowledge of DPII, the representations and warranties of DPII
contained in this Agreement (including the exhibits and schedules hereto) do not
contain and will not contain any untrue statement of a material fact and do not
and will not omit to state a material fact necessary to make the statements or
facts contained herein or therein, in this context and under the circumstances
in which such statements or facts appear, not misleading.
4.36 Investment Intent.
DPII is acquiring the Axys AAT Stock for its own account and for
investment, and not with a view to, or for sale in connection with any
distribution of such Company Shares. DPII acknowledges that such Company Shares
constitute "restricted securities" which cannot be resold absent a registration
statement for such resale under the Securities Act of 1933 (and blue sky
equivalents) or an exemption from the registration requirements thereof.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND AXYS
The obligations of the Company and Axys to effect the transactions
contemplated hereby are subject to the satisfaction, at or before the Closing,
of each of the following conditions:
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5.1 Representations, Warranties and Covenants.
All representations and warranties of DPII contained in this Agreement
shall be true and correct on and as of the Closing Date and each of DPII and
Mergersub shall have performed all agreements and covenants required to be
performed by it prior to or on the Closing Date.
5.2 No Proceedings.
No Proceedings against DPII or Mergersub shall have been instituted or
threatened which question the validity or legality of the transactions
contemplated hereby.
5.3 Consents.
All Permits, authorizations, consents, approvals and waivers from third
parties and Governmental or Regulatory Authorities and other Persons necessary
or appropriate to permit DPII and Mergersub to perform their respective
obligations hereunder and to consummate the transactions contemplated hereby
shall have been obtained.
5.4 Closing Deliveries.
DPII shall have executed and delivered the documents required to be
executed and delivered by DPII pursuant to Section 2.14(c) above.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF DPII AND MERGERSUB
The obligation of DPII and Mergersub to effect the transactions
contemplated hereby is subject to the satisfaction, at or before the Closing, of
each of the following conditions:
6.1 Representations, Warranties and Covenants.
All representations and warranties of Axys and the Company contained in
this Agreement shall have been true and correct when made and shall be true and
correct on and as of the Closing Date and Axys and the Company shall have
performed all agreements and covenants required to be performed by them prior to
or on the Closing Date.
6.2 No Proceedings.
No Proceedings against the Company or Axys shall have been instituted or
threatened which question the validity or legality of the transactions
contemplated hereby.
6.3 Consents.
All Permits, authorizations, consents, approvals and waivers from third
parties and Governmental or Regulatory Authorities and other Persons necessary
or appropriate to permit
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Axys and the Company to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby shall have been obtained.
6.4 Closing Deliveries.
The Company and Axys shall have executed and delivered the documents
required to be executed and delivered by the Company or Axys pursuant to Section
2.14(b) above.
ARTICLE VII
COVENANTS OF THE PARTIES
7.1 Covenants by Axys and DPII.
Prior to the Closing Date, each of Axys, the Company, DPII and Mergersub
covenant to act as follows:
(a) Notification of Certain Matters. Each of the parties shall give
prompt notice to the other party, of (i) the discovery of a fact or facts of
which the notifying party has actual knowledge which cause any of the
representations, warranties or statements made by it or in an any exhibit,
schedule or other document delivered pursuant to this Agreement, to be false or
misleading or omit any facts necessary in order to make such representations,
warranties or statements not false or misleading; (ii) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty made by them in this Agreement to be untrue
or inaccurate any time from the date of this Agreement to the Closing Date; and
(iii) any failure of the notifying party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it or him hereunder.
Each party hereto shall use all reasonable efforts to remedy any failure on its
or his part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it or him/her hereunder.
During the period from the date of this Agreement to the Closing
Date, DPII will reasonably promptly notify Axys of any material change in, or
outside of, the Ordinary Course of Business of DPII or the DPII Business and of
any Governmental or Regulatory Authority complaints, investigative hearings, or
the institution, written threat (to the extent DPII has or should have Knowledge
of such threat) or settlement of litigation, in each case involving an amount in
excess of $50,000 and relating to DPII or the DPII Business, and shall keep Axys
fully informed in reasonable detail of such events. DPII shall not enter into
any settlements over $50,000 in connection with any such litigation without the
prior written consent of Axys.
During the period from the date of this Agreement to the Closing
Date, Axys and the Company will reasonably promptly notify DPII of any material
change in, or outside of, the Ordinary Course of Business of the Company or the
Business and of any Governmental or Regulatory Authority complaints,
investigative hearings, or the institution, written threat (to the extent Axys
or the Company has or should have Knowledge of such threat) or settlement of
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litigation, in each case involving an amount in excess of $50,000 and relating
to the Company or the Business, and shall keep DPII fully informed in reasonable
detail of such events. Neither the Company nor Axys shall enter into any
settlements over $50,000 in connection with any such litigation without the
prior written consent of DPII.
(b) Reasonable Commercial Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto will use its reasonable
commercial efforts to take, or cause to be taken, all action, or to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, obtaining all consents and
approvals of all Persons and Governmental or Regulatory Authorities and removing
any injunctions or other impairments or delays or otherwise which are necessary
to the consummation of the transactions contemplated by this Agreement. Any time
after the closing, Axys and DPII will, and DPII will cause the Company to,
promptly execute, acknowledge and deliver any other assurances or documents
reasonably requested by DPII or Axys, as the case may be, to satisfy its
obligations hereunder or to consummate or implement the transactions and
agreements contemplated hereby.
(c) Filings. Each of the parties hereto will use its reasonable
commercial efforts to make or cause to be made all such filings and submissions
as may be required under applicable laws and regulations for the consummation of
the transactions contemplated by this Agreement. Axys and DPII will coordinate
and cooperate with one another in exchanging such information and provide each
other such assistance as any other party may reasonably request in connection
with the foregoing.
(d) Confidentiality.
(i) Except as and to the extent required by law or as
expressly permitted in the other Transaction Agreements, the parties hereto will
not disclose or use, and will direct their respective representatives not to
disclose or use any Confidential Information of such other party furnished, or
to be furnished, by such other party or its representatives to the receiving
party or its representatives at any time or in any manner other than use in
connection with the transaction contemplated in this Agreement or disclosure
permitted by the terms hereof; provided, that if such disclosure is required by
federal or state securities laws or regulations of any stock exchange (or
quotation system), the party making such disclosure shall use reasonable efforts
to limit the disclosure (including seeking confidential treatment, if
applicable, of commercially sensitive or proprietary information) and shall
reasonably consult with the other party regarding the timing and content of any
such disclosure. Notwithstanding the foregoing, Confidential Information shall
not include any information which is generally known to the public or to
companies in businesses similar to the Business, or which later, through no act
of the disclosing party, becomes generally known.
(ii) In the event this Agreement is terminated prior to the
consummation of the transaction contemplated hereunder, the party receiving any
such Confidential Information shall (a) return to the party disclosing the same,
or shall destroy in a
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manner satisfactory to such disclosing party, all tangible forms of such
Confidential Information, including any and all copies thereof, and those
portions of any documents, memoranda, notes, studies and analyses prepared by or
on behalf of the receiving party or any of its directors, officers, employees,
advisors or representatives that incorporate or are derived from such
Confidential Information, and (b) immediately cease, and shall cause its
directors, officers, employees, partners, advisors and representatives to cease,
use of such Confidential Information as well as any information or materials
that incorporate or are derived from such Confidential Information.
(e) Public Announcements. Prior to the Closing, the Company, Axys,
DPII and Mergersub shall not issue any press release or make any public
announcement with respect to this Agreement and the transactions contemplated
hereby without obtaining the prior consent of the other parties, except as may
be required by applicable law on the part of Axys upon the advice of counsel and
announcement to DPII's indirect investors and financing services.
(f) Disclosure Schedule Supplement. At any time on or before the
third business day prior to the Closing Date, any party may update particular
sections of the Disclosure Schedule or DPII Disclosure Schedule, as the case may
be, by delivering to DPII or Axys, as the case may be, a written description of
a matter or event that first arises (and was reasonably foreseeable only after
the date hereof (specifying the applicable sections of the Disclosure Schedule
or DPII Disclosure Schedule, as the case may be, being updated) by each such
matter or event) that would, if not for the update to the Disclosure Schedule or
DPII Disclosure Schedule, as the case may be, contemplated thereby, result in
one or more of the conditions set forth in Section 5.1, Section 5.2, Section 6.1
or Section 6.2 hereof not being satisfied at Closing; provided, that no such
update shall be effective for purposes of determining whether any of the
conditions set forth in Article VI hereof shall have been satisfied at Closing;
provided, further, that no such update shall be effective unless accompanied by
a written acknowledgment by such party that the matter or event described would,
if not for the update to the applicable sections of the Disclosure Schedule or
DPII Disclosure Schedule, as the case may be, provided for herein, result in one
or more of the conditions set forth in Section 5.1, Section 5.2, Section 6.1 or
Section 6.2 hereof not being satisfied and agreeing to terminate and abandon
this Agreement pursuant to Section 10.1(a)(i) hereof at the option of the
counterparty. If the Closing occurs, the Disclosure Schedule or DPII Disclosure
Schedule, as the case may be, shall be deemed supplemental or amended for all
purposes of the Agreement, including without limitation, Section 8.2.
7.2 Covenants of the Company and Axys.
Prior to the Closing Date, each of the Company and Axys covenants to act
as follows:
(a) Maintenance of Business Prior to Closing. Except as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Closing Date, the Company has conducted and will continue to
conduct the Business in accordance with its Ordinary Course of Business and seek
to preserve its current relationships with the customers and other persons with
whom it has business relations to the extent consistent
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with its Ordinary Course of Business. Without limiting the generality of the
foregoing and, except as otherwise expressly provided in this Agreement, prior
to the Closing Date, without the prior written consent of DPII, the Company will
not, and Axys will cause the Company not to, with respect to the Company or the
Business:
(i) (A) create, incur or assume any long-term or short-term
debt (including obligations with respect to capital leases), other than under
revolving credit facilities existing as of the date of this Agreement or in
connection with the acquisition of any real property, machinery, equipment or
other capital assets with a purchase price not in excess of $25,000 in the
aggregate or (B) assume, guarantee, endorse or otherwise become liable or
responsible for (whether directly, contingently or otherwise) the obligations of
any other Person, other than endorsing negotiable instruments in the Ordinary
Course of Business;
(ii) (A) except as required by applicable law, increase the
compensation of any Company Employee, other than in the Ordinary Course of
Business, (B) pay or agree to pay any pension, retirement allowance, severance
or other employee benefit not required by law or by any Plan to any Company
Employee, whether past or present, (C) commit itself to any additional pension,
profit sharing, bonus, incentive, deferred compensation, group insurance,
severance pay, retirement or other employee benefit plan, agreement or
commitment, or to any employment or consulting agreement with or for the benefit
of any Person or (D) amend any Benefit Plan, other than as required by, or as
necessary to comply with, applicable law or by any such Benefit Plan;
(iii) (A) except as permitted by Section 7.2(a)(xv), sell,
transfer or otherwise dispose of, or agree to sell, transfer, license, grant or
otherwise dispose of any of its Company Assets or Properties except in the
Ordinary Course of Business or (B) permit any Encumbrance on any of its Asset or
Properties;
(iv) permit any insurance (or reinsurance) policies to be
cancelled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies with similarly rated insurance companies providing coverage equal to or
greater than coverage remaining under those cancelled, terminated or lapsed are
in full force and effect;
(v) make any changes to the accounting methods, principles
or practices applicable to the Company, except as required by GAAP;
(vi) permit any damage, destruction or casualty loss,
whether covered by insurance or not, material to the Business taken as a whole;
(vii) make, pay, discharge or otherwise satisfy any claims,
Liabilities or Encumbrances of the Business except in the Ordinary Course of
Business;
(viii) through negotiation or otherwise, make any commitment
or incur any Liability with respect to make any capital expenditure or
commitment or additions to the
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Company Assets and Properties except for capital expenditures made in the
Ordinary Course of Business and that do not exceed Twenty-Five Thousand Dollars
($25,000);
(ix) enter into any other agreements, commitments or
transactions, except (A) agreements, commitments or transactions made in the
Ordinary Course of Business or (B) operating leases in an amount not to exceed
in the aggregate $10,000 per month on a cumulative basis;
(x) create, organize or otherwise establish any new
subsidiary or other entity;
(xi) take or omit to take any action in violation or
contravention of any provision of Section 3.27 above or any other representation
or warranty hereunder;
(xii) fail to perform in a timely manner any of the
Company's obligations under any contracts to which the Company is a party;
(xiii) settle any material Tax audit, make or change any
material Tax election or file any amended income or other material Tax Return;
(xiv) issue, deliver, sell, authorize or propose the
issuance, delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into shares of capital stock, or accelerate the vesting schedule of any options,
or enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible shares, except for employee stock options
(exercisable for DPII shares) offered, subject to approval of DPII's Board
following the Closing, to new employees of the Company in the Ordinary Course of
Business; provided, that in no event shall the aggregate number of shares of
common stock of DPII so offered exceed 20,000 shares;
(xv) declare, set aside or pay any dividend or other
distribution or make or agree to make any distribution or payment in respect of
its capital stock or redeem, purchase or otherwise acquire or agree to acquire
any of its capital stock other than cash dividends paid to Axys on or prior to
the Closing Date in an amount not to exceed the excess of (A) the amount of cash
held by the Company as of the Closing Date, over (B) the amount of cash received
by the Company (or by Axys in respect of the Company) between January 1, 2000
and the Closing Date and not in the ordinary course of business;
(xvi) hire or retain (or offer to hire or retain) any
employee or consultant with total annual expected compensation (including bonus
potential) in excess of $100,000, fire, terminate or otherwise discharge any
such employee or consultant or enter into any employment, consulting or similar
agreement; or
(xvii) agree, whether in writing or orally, whether formally
or informally, to engage in any of the actions described in this Section 7.2(a).
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(b) Investigation by DPII. The Company and Axys shall allow DPII,
at its own expense during regular business hours, or otherwise with the consent
of Axys (which consent shall not be unreasonably withheld), to make such
inspection of the Company and the Business and to inspect (and, if applicable,
make copies of) Books and Records, offices and other facilities of the Company
as requested by DPII and necessary for or related to the operation of the
Business, including historical financial information, concerning the Business.
(c) Consents. As soon as practicable, the Company and Axys will
commence all reasonable action required hereunder to obtain all applicable
Permits, consents, approvals and agreements of, and to give all notices and make
all filings with, any third parties as may be necessary to authorize, approve or
permit the full and complete consummation of the transactions contemplated
hereby by the Closing Date.
(d) Compliance with Laws. The Company and Axys shall comply with
all laws and regulations which are applicable to them or to the conduct of the
Business where failure so to comply would have a Material Adverse Effect on the
Company or the Business and will perform and comply with all contracts to which
the Company is a party where failure so to perform and comply would have a
Material Adverse Effect on the Company or the Business.
(e) Continued Truth of Representations and Warranties. The Company
and Axys will not take any actions which would result in any of its
representations, warranties, covenants and agreements set forth in this
Agreement to be untrue, incorrect, unsatisfied or otherwise changed in any
material respect at any time.
(f) Cooperation. The Company and Axys shall cooperate fully with
DPII and shall provide DPII with such assistance as DPII may reasonably request,
for the purpose of facilitating the performance by DPII of its respective
obligations under this Agreement.
(g) Intercompany Accounts. Except as set forth in Section 7.2(g) of
the Disclosure Schedule, as of the Closing, all agreements (other than any
confidentiality agreement, the Investors' Rights Agreement Amendment, the
Shareholders' Agreement Amendment, the Voting Agreement Amendment, the
Standstill Agreement, the Indemnity Escrow Agreement, the Non-Competition
Agreement, the Contribution Agreement, the Facilities Agreement, the Sublease
Amendment, the License Agreement and the Compound Supply Agreement) between Axys
or an Affiliate of Axys (other than the Company) and the Company or DPII will be
terminated without further liability to any party thereto with respect to
periods following the Closing.
7.3 Covenants of DPII. Prior to the Closing Date, DPII covenants to act
as follows:
(a) Maintenance of Business Prior to Closing. Except as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Closing Date, DPII has conducted and will continue to conduct
in accordance with its Ordinary Course of Business and seek to preserve its
current relationships with the customers and other persons with whom it has
business relations to the extent consistent with its Ordinary Course of
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Business. Without limiting the generality of the foregoing and, except as
otherwise expressly provided in this Agreement, prior to the Closing Date,
without the prior written consent of Axys, DPII will not:
(i) (A) create, incur or assume any long-term or short-term
debt (including obligations with respect to capital leases), other than under
revolving credit facilities existing as of the date of this Agreement or in
connection with the acquisition of any real property, machinery, equipment or
other capital assets with a purchase price not in excess of $25,000 in the
aggregate or (B) assume, guarantee, endorse or otherwise become liable or
responsible for (whether directly, contingently or otherwise) the obligations of
any other Person, other than endorsing negotiable instruments in the Ordinary
Course of Business;
(ii) (A) except as required by applicable law, increase the
compensation of any DPII employee, other than in the Ordinary Course of
Business, (B) pay or agree to pay any pension, retirement allowance, severance
or other employee benefit not required by law or by any Plan to any DPII
employee, whether past or present, (C) commit itself to any additional pension,
profit sharing, bonus, incentive, deferred compensation, group insurance,
severance pay, retirement or other employee benefit plan, agreement or
commitment, or to any employment or consulting agreement with or for the benefit
of any Person or (D) amend any Benefit Plan, other than as required by, or as
necessary to comply with, applicable law or by any such Benefit Plan;
(iii) (A) sell, transfer or otherwise dispose of, or agree
to sell, transfer, license, grant or otherwise dispose of any of DPII assets or
properties except in the Ordinary Course of Business or (B) permit any
Encumbrance on any of its asset or properties;
(iv) permit any insurance (or reinsurance) policies to be
cancelled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies with similarly rated insurance companies providing coverage equal to or
greater than coverage remaining under those cancelled, terminated or lapsed are
in full force and effect;
(v) make any changes to the accounting methods, principles
or practices applicable to DPII, except as required by GAAP;
(vi) permit any damage, destruction or casualty loss,
whether covered by insurance or not, material to DPII's business taken as a
whole;
(vii) make, pay, discharge or otherwise satisfy any claims,
Liabilities or Encumbrances of DPII's business except in the Ordinary Course of
Business;
(viii) through negotiation or otherwise, make any commitment
or incur any Liability with respect to make any capital expenditure or
commitment or additions to DPII's assets and properties except for capital
expenditures made in the Ordinary Course of Business and that do not exceed
Twenty-Five Thousand Dollars ($25,000);
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(ix) enter into any other agreements, commitments or
transactions, except (A) agreements, commitments or transactions made in the
Ordinary Course of Business or (B) operating leases in an amount not to exceed
in the aggregate $10,000 per month on a cumulative basis;
(x) create, organize or otherwise establish any new
subsidiary or other entity;
(xi) take or omit to take any action in violation or
contravention of any provision of Section 4.27 above or any other representation
or warranty hereunder;
(xii) fail to perform in a timely manner any of DPII's
obligations under any contracts to which DPII is a party;
(xiii) settle any material Tax audit, make or change any
material Tax election or file any amended income or other material Tax Return;
(xiv) issue, deliver, sell, authorize or propose the
issuance, delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into shares of capital stock, or accelerate the vesting schedule of any options
or enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible shares, except for employee stock options
offered, subject to approval of DPII's Board following the Closing, to new
employees of DPII in the Ordinary Course of Business; provided, that in no event
shall the aggregate number of shares of common stock of DPII so offered exceed
20,000 shares;
(xv) declare, set aside or pay any dividend or other
distribution or make or agree to make any distribution or payment in respect of
its capital stock or redeem, purchase or otherwise acquire or agree to acquire
any of its capital stock;
(xvi) hire or retain (or offer to hire or retain) any
employee or consultant with total annual expected compensation (including bonus
potential) in excess of $100,000, fire, terminate or otherwise discharge any
such employee or consultant or enter into any employment, consulting or similar
agreement;
(xvii) allow Mergersub to operate any business; or
(xviii)agree, whether in writing or orally, whether formally
or informally, to engage in any of the actions described in this Section 7.3(a).
(b) Investigation by Axys. DPII shall allow Axys, at its own
expense during regular business hours, or otherwise with the consent of DPII
(which consent shall not be unreasonably withheld), to make such inspection of
DPII and DPII's business and to inspect (and, if applicable, make copies of)
Books and Records, offices and other facilities of DPII as
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requested by Axys and necessary for or related to the operation of DPII's
business, including historical financial information, concerning DPII's
business.
7.4 Covenants of DPII and Mergersub.
Prior to the Closing Date, each of DPII and Mergersub covenants to act
as follows:
(a) Consents. As soon as practicable, DPII and Mergersub will
commence all reasonable action required hereunder to obtain all applicable
Permits, consents, approvals and agreements of, and to give all notices and make
all filings with, any third parties as may be necessary to authorize, approve or
permit the full and complete consummation of the transactions contemplated
hereby by the Closing Date.
(b) Compliance with Laws. DPII and Mergersub shall comply with all
laws and regulations which are applicable to them where failure so to comply
would have a Material Adverse Effect on DPII's or Mergersub's ability to
consummate the transactions contemplated hereby and to perform any of their
respective obligations under this Agreement.
(c) Continued Truth of Representations and Warranties. Neither DPII
nor Mergersub will take any actions which would result in any of its
representations, warranties, covenants and agreements set forth in this
Agreement to be untrue, incorrect, unsatisfied or otherwise changed in any
material respect at any time.
(d) Cooperation. DPII and Mergersub shall cooperate fully with the
Company and Axys, and shall provide the Company and Axys with such assistance as
the Company and Axys may reasonably request, for the purpose of facilitating the
performance by the Company and Axys of their respective obligations under this
Agreement.
ARTICLE VIII
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1 Survival of Representations, Warranties, Etc.
Except as provided in Article IX, the representations, warranties and
covenants contained in or made pursuant to this Agreement or any certificate,
document or instrument delivered pursuant to this Agreement and the
indemnification with respect thereto shall survive the execution and delivery of
this Agreement and the Closing hereunder notwithstanding any investigation,
analysis or evaluation by any Person of the assets, business, operations or
condition (financial or otherwise) of the Company or DPII or any other Person
and thereafter the representations and warranties shall continue to survive in
full force and effect for a period of twenty-four (24) months after the Closing
Date; provided, however, that (i) the representations and warranties contained
in Section 3.1, Section 3.2, Section 3.3, Section 3.12, Section 3.14, Section
4.1, Section 4.2, Section 4.12 and Section 4.14 shall continue to survive
indefinitely after the Closing Date; and (ii) the representations and warranties
in Sections 3.13, 3.20 and 3.24 and
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Sections 4.13, 4.20 and 4.24 shall continue to survive after the Closing Date
until the date that is 90 days after the expiration of the applicable statute of
limitations.
8.2 Indemnification.
(a) By Axys. Axys shall indemnify, defend and hold harmless DPII,
the Surviving Corporation and their respective Affiliates, officers, directors,
employees, agents, successors and assigns (collectively the "DPII Group") from
and against any and all costs, losses, Liabilities, damages, lawsuits,
deficiencies, claims and expenses not reimbursed by insurance, including without
limitation, interest, penalties, costs of mitigation, attorneys' fees and all
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively, the "Damages"), incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty,
or the inaccuracy of any representation, made by the Company or Axys to DPI in
or pursuant to this Agreement, or in the ancillary agreements delivered in
connection with the transactions contemplated in this Agreement, (ii) any
failure by Axys or the Company to perform or comply with any covenant or
agreement that is required to be performed or complied with by Axys or the
Company prior to the Closing, (iii) the operation of the Business (including any
act, omission or contract violation) or the ownership of any of the Company
Assets and Properties prior to the Closing Date, specifically excluding any
trade payables and other Ordinary Course of Business Liabilities and
specifically including Liabilities resulting from any Proceeding arising from
acts or omissions occurring before the Closing Date, (iv) Proceedings, if any,
set forth in the Disclosure Schedule, (v) Akkadix Claims, (vi) the events,
circumstances, and conditions described in Section 3.20 of the Disclosure
Schedule to the extent they result in actual or alleged violations of
Environmental Laws, and (vii) any Environmental Notice, pollution or threat to
human health or the environment or any alleged violation of Environmental Law
that is related in any way to Axys' or the Company's, or any other owner's or
operator's management, use, control, ownership or operation of the Company
Assets or Properties or the Business (including, without limitation, all on-site
and off-site activities involving Materials of, from or relating to the Business
or the Company Assets and Properties), and that occurred, existed, arises out of
conditions or circumstances that occurred or existed, or was caused, in whole or
in part, on or before the Closing Date, whether or not such matters are
described in Section 3.20 of the Disclosure Schedule. For the purposes of this
Section 8.2, the term "Akkadix Claims" shall mean any Proceedings by Akkadix or
its Affiliates against the Company based on the intellectual property rights
licensed by Axys or its Affiliates to Akkadix or its Affiliates, but excluding
any aspect of such Proceedings, and any Damages in such Proceedings, that are
based on actions or activities of the Company after the Closing that constitute
a breach of the License Agreement.
(b) By DPII. DPII shall indemnify, reimburse, defend and hold
harmless Axys and their respective officers, employees, agents, successors and
assigns (collectively, the "Axys Group") from and against any and all Damages
incurred in connection with, arising out of, resulting from or incident to (i)
any breach of any representation or warranty or the inaccuracy of any
representation made by DPII or Mergersub to Axys in or pursuant to this
Agreement, (ii) any failure by DPII or Mergersub to perform or comply with any
covenant or
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agreement that is required to be performed or complied with by DPII or Mergersub
prior to the Closing, (iii) the operation of the Business (including any act,
omission or contract violation) or the ownership of any of the Company Assets
and Properties after the Closing Date, except for (A) obligations relating to
products and services delivered by the Company before the Closing Date and (B)
the Akkadix Claims, (iv) costs, liabilities, and expenses incurred by Axys in
connection with satisfying any guarantees by Axys of contractual obligations of
the Company to be performed after the Closing Date set forth in Section 3.19 of
the Disclosure Schedule, except for obligations relating to products and
services delivered by the Company before the Closing Date, (v) the events,
circumstances, and conditions described in Section 4.20 of the Disclosure
Schedule to the extent they result in actual or alleged violations of
Environmental Laws, and (vi) any Environmental Notice, pollution or threat to
human health or the environment or any alleged violation of Environmental Law
that is related in any way to DPII's, or any other owner's or operator's
management, use, control, ownership or operation of DPII Assets or Properties or
the DPII Business (including, without limitation, all on-site and off-site
activities involving Materials of, from or relating to the DPII Business or the
DPII Assets and Properties), and that occurred, existed, arises out of
conditions or circumstances that occurred or existed, or was caused, in whole or
in part, on or before the Closing Date, whether or not such matters are
described in Section 4.20 of the DPII Disclosure Schedule.
(c) Defense of Claims. If any Proceeding is filed or initiated against
any party entitled to the benefit of indemnity hereunder, written notice thereof
shall be given to the indemnifying party as promptly as practicable (and in any
event within ten (10) days after the service of the citation or summons);
provided, however, that the failure of any indemnified party to give timely
notice shall not affect rights to indemnification hereunder except to the extent
that the indemnifying party has been materially prejudiced by such failure to
give timely notice. After such notice, if the indemnifying party shall
acknowledge in writing to the indemnified party that the indemnifying party
shall be obligated under the terms of its indemnity hereunder in connection with
such Proceeding, then the indemnifying party shall be entitled, if it so elects,
to take control of the defense and investigation of such Proceeding and to
employ and engage attorneys of its own choice to handle and defend the same,
such attorneys to be reasonably satisfactory to the indemnified party, at the
indemnifying party's cost, risk and expense (unless (i) the indemnifying party
has failed to assume the defense of such Proceeding or (ii) the named parties to
such Proceeding include both of the indemnifying party and the indemnified
party, and the indemnified party and its counsel determine in good faith that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party
and that joint representation would be inappropriate), and to compromise or
settle such Proceeding, which compromise or settlement shall be made only with
the written consent of the indemnified party, such consent not to be
unreasonably withheld. The indemnified party may withhold such consent if such
compromise or settlement would materially adversely affect the conduct of
business. Notwithstanding the foregoing, the indemnified party may not withhold
consent if such compromise or settlement includes an unconditional release of
claims against the indemnified party. If (i) the indemnifying party fails to
assume the defense of such Proceeding within fifteen (15) days after receipt of
notice thereof pursuant to this Section 8.2, or (ii) the named parties to such
Proceeding include both the indemnifying party and the
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indemnified party and the indemnified party and its counsel determine in good
faith that there may be one or more legal defenses available to such indemnified
party that are different from or additional to those available to the
indemnifying party and that joint representation would be inappropriate, the
indemnified party against which such Proceeding has been filed or initiated will
(upon delivering notice to such effect to the indemnifying party) have the right
to undertake, at the indemnifying party's cost and expense, the defense,
compromise or settlement of such Proceeding on behalf of and for the account and
risk of the indemnifying party; provided, however, that such Proceeding shall
not be compromised or settled without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. In the event the
indemnified party assumes defense of the Proceeding, the indemnified party will
keep the indemnifying party reasonably informed of the progress of any such
defense, compromise or settlement and will consult with, when appropriate, and
consider any reasonable advice from, the indemnifying party of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 8.2 and for any final judgment (subject to any right of appeal), and the
indemnifying party agrees to indemnify and hold harmless the indemnified party
from and against any Damages by reason of such settlement or judgment.
Regardless of whether the indemnifying party or the indemnified party
takes up the defense, the indemnifying party will pay reasonable costs and
expenses in connection with the defense, compromise or settlement for any
Proceeding under this Section 8.2.
The indemnified party shall cooperate in all reasonable respects with
the indemnifying party and such attorneys in the investigation, trial and
defense of such Proceeding and any appeal arising therefrom; provided, however,
that the indemnified party may, at its own cost, participate in the
investigation, trial and defense of such Proceeding and any appeal arising
therefrom. The indemnifying party shall pay all expenses due under this Section
8.2 as such expenses become due.
(d) Other Claims. A claim for indemnification for any matter not
involving a third-party claim may be asserted by notice to the party from whom
indemnification is sought.
(e) Limitation on Indemnification.
(i) Axys shall have no liability to any member of the DPII
Group, and DPII shall have no liability to any member of the Axys Group, for
amounts payable pursuant to their respective indemnification obligations in
Section 8.2 (other than with respect to the breach of any covenant or agreement
set forth in Section 3.12) until the total of all such Damages incurred by the
indemnified party exceeds *** in the aggregate (the "Threshold Amount"), and
then indemnification by the indemnifying party shall apply to all such Damages
including the Threshold Amount.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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(ii) Axys shall have no liability to the DPII Group, and
DPII shall have no liability to the Axys Group, pursuant to their respective
indemnification obligations in this Section 8.2 (a)(i) and (ii) or Section
8.2(b)(i) and (ii), as applicable, to the extent that the total of all such
Damages (subject to the threshold requirements set forth in Section 8.2(e)(i)
above) paid by the indemnifying party pursuant to such indemnification
obligations exceeds *** *** in the aggregate.
(iii) Notwithstanding anything to the contrary contained
herein, the limitation on Axys' and DPII's indemnification obligation in Section
8.2(e) shall not apply to any fraud, or intentional breach by Axys or the
Company, or by DPII, as the case may be, of any representation, warranty,
covenant or agreement of such party.
(iv) Notwithstanding anything to the contrary contained
herein, for purposes of determining Damages and the accuracy in or breach of the
representations or warranties referred to in Section 8.2(a) or (b) and
indemnification thereunder, references to "Material Adverse Effect",
"materiality" (and other forms of materiality qualifiers (together "Materiality
Terms")) shall not be applicable. As so construed, no indemnification for
Damages for any representation or warranty containing a Materiality Term under
Section 8.2(a) or (b) shall be required unless the untruth or breach of any
representation or warranty applied without the relevant Materiality Terms
results in Damages of *** or more; provided, however, that where a number of
such Damages are each individually less than *** , but the aggregate of such
Damages exceeds *** and all such Damages are based upon, arise from or are
attributable to the same set of facts or circumstances, such Damages shall be
aggregated for the purposes of this sentence.
(f) Indemnity Escrow Account. The Indemnity Escrow Amount shall be
maintained in the escrow account until the first year anniversary of the Closing
Date (the "Escrow Period") for the purpose of satisfying claims by DPII for
indemnification under this Section 8.2 and Article IX of this Agreement. Upon
expiration of the Escrow Period, and subject to the terms of this Section 8.2
and Article IX and the Indemnity Escrow Agreement, the Escrow Agent shall
deliver or cause to be delivered to Axys the balance, if any, remaining in the
escrow account. If, upon expiration of the Escrow Period, DPII shall have
asserted a claim for indemnity in accordance with this Section 8.2 and Article
IX or Section 2.13 of this Agreement and such claim is pending or unresolved at
the time of such expiration, the Escrow Agent shall retain in escrow a number of
shares of DPII Common Stock with a Fair Market Value (as defined in Section
8.2(g) below) equal to the value of the asserted claim until such matter is
resolved. In the event that DPII is entitled to indemnification under this
Section 8.2, or Article IX, as applicable, DPII's first recourse for
indemnification shall be the Indemnity Escrow Amount pursuant to the terms of
this Agreement and the Indemnity Escrow Agreement. After the Indemnity Escrow
Amount is exhausted or the Indemnity Escrow Agreement is terminated,
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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DPII shall be entitled to seek indemnification under this Section 8.2 or Article
IX directly from Axys, subject to the limitations set forth in this Section 8.2
or Article IX, as applicable. In such event, as DPII's recourse for unsatisfied
Damages owed to DPII, and unless otherwise agreed to in writing by Axys and
DPII, Axys shall surrender to DPII for cancellation as promptly as practicable
such number of shares of DPII Common Stock with a Fair Market Value equal to the
value of the remaining unsatisfied Damages owed to DPII. Without limiting the
generality of the foregoing for purposes of illustration, if it is determined
that DPII is entitled to indemnification by Axys for *** in Damages (which
amount has not been previously satisfied out of the Indemnity Escrow Amount) and
the Fair Market Value of DPII Common Stock is $8.00 per share of DPII Common
Stock, then in satisfaction of the remaining Damages owed to DPII by Axys, Axys
shall surrender to DPII for cancellation *** shares of DPII Common Stock as
promptly as practicable.
(g) Share Adjustment Mechanism. In the event that Axys is entitled
to indemnification under Article VIII, Axys' recourse for the satisfaction of
Damages (subject to the limitations contained in this Section 8.2) owed to Axys
shall be as provided in this Section 8.2(g). Unless otherwise agreed to in
writing by Axys and DPII, DPII shall issue to Axys as promptly as practicable
such number of shares of DPII Common Stock with a Fair Market Value equal to the
value of the unsatisfied Damages owed to Axys. In the event that DPII has an
insufficient number of authorized shares of DPII Common Stock to fulfill its
obligations hereunder, DPII shall take all necessary actions as promptly as
practicable to increase its authorized shares of DPII Common Stock in order to
fulfill its obligations hereunder. For the purposes of this Section 8.2(g) and
Section 8.2(f), the "Fair Market Value" per share of DPII Common Stock shall be
determined as follows: (i) if traded on a securities exchange or through
NASDAQ-NMS, the Fair Market Value shall be deemed to be the average of the
closing price of such share on such exchange over the twenty (20) day period
ending three (3) days prior to the date on which the shares are delivered to
Axys or DPII, as the case may be; or (ii) if there is no active public market,
the Fair Market Value shall be deemed to be the per share price at which the
Company sold shares of its capital stock in its most recent equity financing
negotiated on an arms'-length basis. Tax Indemnity Not Covered. Notwithstanding
anything to the contrary herein, Sections 8.1 and 8.2 (other than Section
8.2(f)) shall have no application with respect to the indemnification for Taxes,
which shall be covered exclusively by the provisions of Article IX.
8.3 [reserved]
8.4 Further Assurances.
In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as the other party
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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reasonably may request, all the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under this
Article VIII).
8.5 Audited Financials.
Axys shall cooperate in all respects with the preparation by the Company
of a GAAP balance sheet as of December 31, 1999 and shall use its best efforts
to cause Ernst & Young LLP to cooperate with the audit thereof. The parties
agree to endeavor to cause such audit to be completed by April 25, 2000. Axys
shall also cooperate in all respects with the preparation by the Company of GAAP
balance sheets for the Business as of December 31, 1998 and December 31, 1997,
and statements of income and of cash flows for the Business for the years ended
December 31, 1999, 1998 and 1997, and shall use its best efforts to cause Ernst
&Young LLP to cooperate with the audit thereof. The parties agree to endeavor to
cause such audit to be completed by April 25, 2000. Axys shall also use its best
efforts to cause Ernst & Young to make available its work papers with respect to
both such audits to the Company and its (post-Closing) auditors upon request, at
any time or from time to time until December 31, 2004. Axys shall cooperate and
shall use its best efforts to cause Ernst & Young LLP to cooperate with DPII in
connection with DPII's use of such financial statements in filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended. It is anticipated that such cooperation shall include the execution and
delivery of consents, representation letters and other customary documents and
undertakings reasonably related thereto.
8.6 Payments Received.
Axys and DPII each agree that after the Closing they will hold and will
promptly transfer and deliver to the other, from time to time as and when
received by them, any cash, checks with appropriate endorsements (using their
best efforts not to convert such checks into cash), or other property that they
may receive on or after the Closing which properly belongs to the other party,
including without limitation any insurance proceeds, and will account to the
other for all receipts.
ARTICLE IX
CERTAIN TAX MATTERS
9.1 Not Tax Free.
The parties intend the Merger not to be a tax-free reorganization under
Section 368 of the Code. Each party has consulted with its own tax advisors with
respect to the tax consequences of the Merger. This Agreement is not a plan of
reorganization under Section 368 of the Code. At the request of DPII, Axys shall
cooperate in making an election under Section 338(h)(10) of the Code and any
comparable provisions of state law (the "Section 338(h)(10) Election").
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9.2 Allocation of Merger Consideration.
DPII shall provide to Axys on or before the date that is 150 days after
the Closing Date, a proposed allocation of the Merger Consideration for the
deemed sale of assets resulting from the making of the Section 338(h)(10)
Election, setting forth the estimated fair market values of the assets of the
Company. Axys and DPII shall agree upon a final allocation of such consideration
(the "Final Allocation") on or before the date that is 180 days after the
Closing Date. Axys and DPII shall cooperate in developing the Final Allocation,
and any dispute with respect thereto shall be resolved pursuant to Section 9.11.
The parties agree that, for the purposes of calculating the Final Allocation,
the value of the DPII Common Stock shall be deemed to be $8.00 per share.
9.3 Forms.
DPII shall prepare, and Axys shall cooperate in drafting and making
final, all forms (including IRS Form 8023), together with required attachments
thereto, required for making the Section 338(h)(10) Election (the "Election
Forms"), and any dispute with respect thereto shall be resolved pursuant to
Section 9.11. The Election Forms shall be timely filed by DPII with the proper
Taxing Authorities; provided, however, that Axys shall be responsible for filing
any Election Form(s) that must be filed by Axys with its Tax Returns.
9.4 Modification; Revocation.
DPII and Axys each agrees that it shall not, and shall not permit any of
its Affiliates to, take any action to modify the Election Forms following the
execution thereof, or to modify or revoke the Section 338(h)(10) Election
following the filing of the Election Forms without the written consent of DPII
or Axys, as the case may be.
9.5 Consistent Treatment.
DPII and Axys shall, and shall cause their respective Affiliates to,
file all Tax Returns in a manner consistent with the information contained in
the Election Forms as filed and the Final Allocation, unless otherwise required
because of a change in applicable Tax law.
9.6 Expenses Resulting from Section 338(h)(10) Elections.
DPII and its Affiliates (including the Company following the Closing),
on the one hand, and Axys and its Affiliates, on the other hand, shall bear
their respective administrative, legal and similar expenses resulting from the
making of the Section 338(h)(10) Election.
9.7 Tax Sharing Agreements.
Any Tax sharing agreements, arrangements or contracts of any kind
(whether written or oral) between the Company and any other Person shall be
terminated effective as of the Closing Date.
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9.8 Tax Indemnity.
(a) Notwithstanding any other provisions of this Agreement, from,
and after the Closing Date, Axys shall be liable to, and shall indemnify and
hold harmless, DPII, the Company and their respective officers, directors,
Affiliates and assigns from and against the following amounts: (i) Taxes imposed
on or attributable to the Company with respect to taxable years or periods
ending on or before the Closing Date (including, without limitation, any income
taxes arising as a result of any Section 338(h)(10) Election); (ii) with respect
to taxable years or periods beginning before the Closing Date and ending after
the Closing Date (a "Straddle Period"), Taxes imposed on or attributable to the
Company which are allocable, pursuant to Section 9.8(c), to the portion of such
Straddle Period ending on the Closing Date (an "Interim Period") (Interim
Periods and any taxable years or periods that end on or prior to the Closing
Date being referred to collectively hereinafter as "Pre-Closing Periods"); (iii)
Taxes imposed on any member of any affiliated group with which Axys and/or the
Company file or have filed a Tax Return on a consolidated, combined or unitary
basis for any taxable year or period beginning before the Closing Date; (iv)
Taxes required to be paid or reimbursed by Axys under Section 9.8(d) (to the
extent such Taxes have not been paid by Axys); (v) Taxes imposed on the DPII or
the Company as a result of an inaccuracy or breach of the representations and
warranties set forth in Section 3.24 or a breach of the covenants contained in
this Article IX, without duplication; and (vi) Taxes or other payments required
to be made after the date hereof by the Company to any Person under any Tax
sharing, indemnity or allocation agreement entered into before the Closing Date
(whether oral or written).
(b) Notwithstanding any other provisions of this Agreement to the
contrary, from and after the Closing Date, DPII shall be liable for and shall
indemnify Axys and its officers, directors, Affiliates and assigns from and
against the following amounts: (i) Taxes imposed on or attributable to the
Company which are allocable, pursuant to Section 9.8(c), to the portion of any
Straddle Period beginning after the Closing Date and (ii) Taxes imposed on or
attributable to the Company, or for which the Company may otherwise be liable,
for any taxable period that begins after the Closing Date.
(c) In order to apportion appropriately any Taxes relating to any
taxable year or period that includes an Interim Period, the parties hereto
shall, to the extent permitted under applicable law, elect with the relevant
Taxing Authority to treat, for all purposes, the Closing Date as the last day of
the taxable year or period of the Company, and such Interim Period shall be
treated as a short taxable year and a Pre-Closing Period for purposes of this
Section 9.8(c). In any case where applicable law does not permit the Company to
treat the Closing Date as the last day of the taxable year or period of the
Company with respect to Taxes that are payable with respect to an Interim
Period, the portion of any such Tax that is allocable to the Interim Period
shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with any sale or
other transfer or assignment of property (real or personal, tangible or
intangible), deemed equal to the amount which would be
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payable if the taxable year or period ended on the Closing Date (except that (1)
exemptions, allowances and deductions such as depreciation deductions calculated
on an annual basis shall be prorated between the Interim Period and the
remainder of the Straddle Period and (2) solely for purposes of determining the
marginal tax rate applicable to income or receipts during such period in a
jurisdiction in which such tax rate depends upon the level of income or
receipts, annualized income or receipts may be taken into account, if
appropriate, for an equitable sharing of such Taxes); and
(ii) in the case of Taxes not described in clause (i) above
that are imposed on a period basis and measured by the level of any item, deemed
to be the amount of such Taxes for the entire period (or, in the case of such
Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period) multiplied by a fraction the numerator of which is
the number of calendar days in the Interim Period and the denominator of which
is the number of calendar days in the entire relevant period.
(d) Axys shall be liable for and shall pay all applicable sales,
transfer, recording, deed, stamp and other similar taxes, including, without
limitation, any real property transfer or gains taxes (if any), resulting from
the consummation of the transactions contemplated by this Agreement.
9.9 Mutual Cooperation.
As soon as practicable, but in any event within 30 days after either
Axys' or DPII's request, DPII shall, or shall cause the Company to, deliver to
Axys or Axys shall deliver to DPII, as the case may be, such information and
other data relating to the Tax Returns and Taxes of the Company and shall
provide such other assistance as may reasonably be requested, to cause the
completion and filing of all Tax Returns or to respond to audits by any Taxing
Authorities with respect to any Tax Returns or taxable periods, or to otherwise
enable Axys, DPII or the Company to satisfy their accounting or Tax
requirements. For a period of five years from and after the Closing, DPII and
Axys shall, and shall cause their Affiliates to, maintain and make available to
the other party, on such other party's reasonable request and at such other
party's sole cost and expense, copies of any and all information, books and
records referred to in this Section 9.9. After such five-year period, DPII or
Axys may dispose of such information, books and records, provided that prior to
such disposition, DPII or Axys shall give the other party the opportunity to
take possession of such information, books and records at such other party's
sole cost and expense.
9.10 Contests.
Whenever any Taxing Authority asserts a claim, makes an assessment or
otherwise disputes the amount of Taxes for which Axys is or may be liable under
this Agreement, DPII shall, if informed of such an assertion, inform Axys within
five business days, and Axys shall have the right to control any resulting
proceedings and to determine whether and when to settle any such claim,
assessment or dispute to the extent such proceedings or determinations affect
the amount of Taxes for which Axys may be liable under the Agreement, except
that DPII shall have
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the right to consent, which consent shall not be unreasonably withheld or
delayed, to any settlement to the extent such proceedings or settlement
materially affect the amount of Taxes imposed on the Company for periods
beginning after the Pre-Closing Date. Whenever any Taxing Authority asserts a
claim, makes an assessment or otherwise disputes the amount of Taxes for which
DPII is or may be liable under this Agreement, Axys shall, if informed of such
an assertion, inform DPII within five business days, and DPII shall have the
right to control any resulting proceedings and to determine whether and when to
settle any such claim, assessment or dispute, except that Axys shall have the
right to consent, which consent shall not be unreasonably withheld or delayed,
to any settlement to the extent such proceedings or settlement materially affect
the amount of Taxes for which Axys is or may be liable under this Agreement.
9.11 Resolution of Disagreements Between Axys and DPII.
If either Axys or DPII disagrees as to the amount of Taxes for which it
may be liable under this Agreement or Axys and DPII are unable to agree as to
the Final Allocation, the parties shall promptly consult each other to resolve
such dispute following the receipt of written notice from either party to begin
such consultation (the "Consultation Notice"). If any such point of disagreement
cannot be resolved within 60 days of the date of the Consultation Notice, or in
the case of the Final Allocation, within the 45-day period required by Section
9.2, as appropriate, Axys and DPII shall within ten days after such period
jointly select a nationally recognized independent public accounting or law firm
which has not, except pursuant to this Section 9.11, performed any services
since January 1, 1998, for Axys or DPII or their respective Affiliates, to act
as an arbitrator to resolve, within 60 days after its selection, all points of
disagreement concerning Tax matters with respect to this Agreement and presented
to such firm at the time of its selection. If the parties cannot agree on the
selection of an accounting or law firm within such ten-day period, they shall
cause their respective accounting firms to select such firm within five business
days of the end of such ten-day period. Any such resolution shall be conclusive
and binding on DPII and Axys. The fees of such independent public accountants or
law firm shall be divided equally between Axys and DPII, and DPII shall (and
shall cause the Company to) provide to such firm full cooperation. Such firm
shall be instructed to reach its conclusion regarding the dispute within 60 days
of its selection.
9.12 Survival of Obligations.
The obligations of the parties set forth in this Article IX shall be
unconditional and absolute, and shall remain in effect until 90 days after the
expiration of the applicable statutes of limitations.
ARTICLE X
MISCELLANEOUS
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10.1 Termination.
(a) This Agreement may be terminated and abandoned at any time
prior to the Closing:
(i) by the mutual consent of Axys and DPII;
(ii) by either Axys or DPII in the event the Closing has not
occurred on or before May 15, 2000 (the "Termination Date"), unless the failure
of such consummation shall be due to the failure of the party seeking to
terminate this Agreement to comply with the agreements and covenants contained
herein to be performed by such party on or before the Termination Date; or
(iii) by either Axys or DPII in the event any court or
governmental agency of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree or
ruling or other action shall have become final and nonappealable.
(b) In the event of the termination and abandonment of this
Agreement by Axys or DPII pursuant to Section 10.1(a), written notice thereof
shall forthwith be given to the other parties. If the transactions contemplated
by this Agreement are terminated as provided herein, no party to this Agreement
will have any liability under this Agreement to any other except for any willful
breach of any provision of this Agreement; and Sections 7.1(d)
(confidentiality), 10.2 (notices), 10.11 (jurisdiction and forum), and 10.12
(expenses) shall survive and shall remain in full force and effect.
10.2 Notices.
All notices, requests and other communications hereunder must be in
writing and will be deemed to have been duly given only if delivered personally
against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:
IF TO AXYS, TO:
Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, CA 94080
Facsimile No: (650) 829-1067
Attention: William J. Newell, Esq.
WITH COPIES TO:
Cooley Godward, LLP
74
<PAGE> 83
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile No.: (650) 849-7400
Attention: Alan C. Mendelson, Esq.
IF TO DPII OR MERGERSUB, TO:
Discovery Partners International, Inc.
9640 Towne Centre Drive
San Diego, CA 92121
Facsimile No: (858) 455-8088
Attention: Chief Executive Officer
WITH COPIES TO:
Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Facsimile No.: (858) 720-2555
Attention: Hayden Trubitt, Esq.
All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section 10.2, be deemed
given upon delivery, (ii) if delivered by facsimile transmission to the
facsimile number as provided in this Section 10.2, be deemed given upon receipt,
and (iii) if delivered by mail in the manner described above to the address as
provided in this Section 10.2, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received by
any other Person to whom a copy of such notice, request or other communication
is to be delivered pursuant to this Section). Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other
parties hereto.
10.3 Entire Agreement.
This Agreement (and all exhibits and schedules attached hereto, all
other documents delivered in connection herewith) supersedes all prior
discussions and agreements among the parties with respect to the subject matter
hereof and contains the sole and entire agreement among the parties hereto with
respect thereto; provided, that all prior non-disclosure/non-use agreements are
not superseded, and remain in effect in addition to the provisions hereof.
10.4 Waiver.
Any term or condition of this Agreement may be waived at any time by the
party that is entitled to the benefit thereof, but no such waiver shall be
effective unless set forth in a written
75
<PAGE> 84
instrument duly executed by or on behalf of the party waiving such term or
condition. No waiver by any party hereto of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion. All remedies, either under this Agreement or by law or
otherwise afforded, will be cumulative and not alternative.
10.5 Amendment.
This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of each party hereto.
10.6 No Third Party Beneficiary.
The terms and provisions of this Agreement are intended solely for the
benefit of each party hereto and their respective successors or permitted
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Person entitled to
indemnity under Section 8.2 or Article IX.
10.7 No Assignment; Binding Effect.
Neither this Agreement nor any right, interest or obligation hereunder
may be assigned by any party hereto without the prior written consent of the
other parties hereto and any attempt to do so will be void, except that any
party's rights to indemnification under Section 8.2 or Article IX may be freely
assigned. This Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
10.8 Headings.
The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.
10.9 Severability.
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law, and if the rights or obligations
of any party hereto under this Agreement will not be materially and adversely
affected thereby, (i) such provision will be fully severable, (ii) this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom and (iv) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and mutually acceptable to
the parties herein.
76
<PAGE> 85
10.10 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California applicable to contracts executed and performed
in such State, without giving effect to conflicts of laws principles.
10.11 Consent to Jurisdiction and Forum Selection.
The parties hereto agree that all actions or proceedings arising in
connection with this Agreement (as to proceedings initiated by Axys) shall be
initiated and tried exclusively in the State and Federal courts located in the
County of San Diego, State of California. The parties hereto agree that all
actions or proceedings arising in connection with this Agreement (as to
proceedings initiated by DPII or Mergersub) shall be initiated and tried
exclusively in the State and Federal courts located in the County of San
Francisco, State of California. The aforementioned choice of venue is intended
by the parties to be mandatory and not permissive in nature, thereby precluding
the possibility of litigation between the parties with respect to or arising out
of this Agreement in any jurisdiction other than that specified in this Section
10.11. Each party hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any proceeding brought in accordance with this paragraph, and stipulates that
the State and Federal courts located in the County of San Diego, State of
California (as to proceedings initiated by Axys) or in the County of San
Francisco, State of California (as to proceedings initiated by DPII or
Mergersub) shall have in personam jurisdiction and venue over each of them for
the purposes of litigating any dispute, controversy or proceeding arising out of
or related to this Agreement. Each party hereby authorizes and accepts service
of process sufficient for personal jurisdiction in any action against it as
contemplated by this Section 10.11 by registered or certified mail, return
receipt requested, postage prepaid, to its address for the giving of notices as
set forth in this Agreement, or in the manner set forth in Section 10.2 of this
Agreement for the giving of notice. Any final judgment rendered against a party
in any action or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner provided by
law.
10.12 Expenses.
Except as otherwise provided in this Agreement, Axys shall pay the
expenses and costs of Axys and the Company and DPII shall pay the expenses and
costs of DPII and Mergersub, respectively, incidental to the preparation of this
Agreement and to the consummation of the transactions contemplated hereby.
10.13 Construction.
No provision of this Agreement shall be construed in favor of or against
any party on the ground that such party or its counsel drafted the provision.
Any remedies provided for herein are not exclusive of any other lawful remedies
which may be available to either party. This Agreement shall at all times be
construed so as to carry out the purposes stated herein.
77
<PAGE> 86
10.14 Counterparts.
This Agreement may be executed in any number of counterparts and by
facsimile, each of which will be deemed an original, but all of which together
will constitute one and the same instrument.
[SIGNATURE PAGES TO FOLLOW]
78
<PAGE> 87
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto, each by a duly authorized officer, as of the date first
above written.
DISCOVERY PARTNERS INTERNATIONAL, INC., a
California corporation
By: /s/ Riccardo Pigliucci
------------------------------------
Name: Riccardo Pigliucci
Title: Chairman and CEO
DPII NEWCO, LLC,
a Delaware limited liability company
By: /s/ Riccardo Pigliucci
------------------------------------
Name: Riccardo Pigliucci
Title: Chairman and CEO
AXYS ADVANCED TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ William J. Newell
------------------------------------
Name: William J. Newell
Title: Vice President
AXYS PHARMACEUTICALS, INC., a Delaware
corporation
By: /s/ John P. Walker
------------------------------------
Name: John P. Walker
Title: Chairman and CEO
79
<PAGE> 88
EXHIBIT A
<PAGE> 89
CERTIFICATE OF INCORPORATION
To be mutually agreed upon by the parties prior to the Closing.
<PAGE> 90
EXHIBIT B
<PAGE> 91
PROMISSORY NOTE
$___________________ San Diego, California
_______________, 200_
For value received, the undersigned hereby promises to pay to
__________________, or order (the "Holder") at 9640 Towne Center Drive, San
Diego, California, the principal amount of _____________________ Dollars
($______________), plus interest accrued thereon.
This Promissory Note shall bear interest at a rate of 8 percent per
annum, compounded annually, until due (upon maturity or acceleration), and after
it is due (upon maturity or acceleration) shall bear interest at 10 percent per
annum, compounded annually.
Accrued interest shall be due and payable, annually in arrears, on each
anniversary of the date of this Promissory Note until payment in full and shall
be calculated on the basis of a 360-day year for the actual number of days
elapsed. All principal and remaining accrued interest shall be due and payable
in a lump sum on the third anniversary of the date of this Note.
This Promissory Note may be prepaid at any time, without premium or
penalty; provided, that any such prepayment must be of the entire principal
amount plus all accrued interest.
Upon the happening of any of the following events, Holder may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Promissory Note, together with all interest thereon, plus any other
amounts payable at the time of such declaration pursuant to this Promissory
Note; provided, that in the case of a default under clause (1) or (2), all
amounts shall be automatically due and payable. Such events are the following:
(1) the maker of this Promissory Note ("Maker") shall admit in writing its
inability to pay his debts as they become due, shall make a general assignment
for the benefit of creditors or shall file any petition or action for relief
under any bankruptcy, reorganization, insolvency or moratorium law, or any other
law or laws for the relief of, or relating to, debtors; or (2) an involuntary
petition shall be filed against Maker under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors unless such petition shall be dismissed or vacated within
sixty (60) days of the date thereof; (3) Maker shall fail to make any payment of
principal, interest or any other amounts payable hereunder when due; or (4)
Maker shall have closed its initial underwritten public offering of its common
stock pursuant to a registration statement under the Securities Act of 1933, as
amended.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express consent of
Holder.
The Maker of this Promissory Note waives diligence, presentment, protest
and demand and also notice of protest, demand, dishonor and nonpayment of this
Promissory Note, and
<PAGE> 92
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consents to the acceptance of security, if any,
or the release of security, if any, from this Promissory Note, all without in
any way affecting the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note, or any instrument securing this Promissory
Note, or any and all obligations or liabilities arising out of or in connection
with this Promissory Note, is expressly waived by Maker to the fullest extent
permitted by law.
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by Maker even if it
is not a party to such agreement.
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of
Maker, Maker shall be liable to pay to Holder immediately and without demand all
reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made on appeal or through a bankruptcy court, and
all such sums shall be fully secured by all instruments, if any, securing this
Promissory Note.
The provisions of this Promissory Note are intended by Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.
The provisions of this Note shall inure the benefit of and be binding on
any successor to Maker and shall extend to any holder hereof.
DISCOVERY PARTNERS INTERNATIONAL,
INC.
By:
-----------------------------------
President
2
<PAGE> 93
EXHIBIT C
<PAGE> 94
AXYS PHARMACEUTICALS, INC.
OFFICER'S CERTIFICATE
I, William J. Newell, Senior Vice President of Axys Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), in my capacity as an officer of
the Company and not in any individual or personal capacity, in connection with
the merger of DPII Newco, LLC ("Newco") with and into Axys Advanced
Technologies, Inc. ("ATT"), pursuant to Section 2.14(b)(xiv) of the Agreement
and Plan of Merger, dated as of April 11, 2000, by and among the Company, AAT,
Newco, and Discovery Partners International, Inc. (the "Agreement"), do hereby
certify that:
1. No legal action, suit or proceeding is pending or threatened which
seeks to restraion or prohibit the transactions contemplated by the Agreement on
the date hereof.
2. The representations and warranties of the Company contained in the
Agreement were true and correct on the date of the Agreement and are true and
correct on the date hereof as if made on the date hereof (except for
representations given as of a specific date, which representations are true and
correct as of such date).
3. The Company has performed all covenants and agreements contained in
the Agreement which are required to be performed by the Company on or before the
date hereof.
All capitalized terms not otherwise defined herein have the meanings
assigned to those terms in the Agreements.
[Remainder of page intentionally left blank.]
<PAGE> 95
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of April,
2000.
AXYS PHARMACEUTICALS, INC.
By:
------------------------------------
William J. Newell
Senior Vice President
<PAGE> 96
AXYS ADVANCED TECHNOLOGIES, INC.
OFFICER'S CERTIFICATE
I, William J. Newell, Secretary of Axys Advanced Technologies, Inc., a
Delaware corporation (the "Company"), in my capacity as an officer of the
Company and not in any individual or personal capacity, in connection with the
merger of DPII Newco, LLC ("Newco") with and into the Company pursuant to
Section 2.14(b)(xiv) of the Agreement and Plan of Merger, dated as of April 11,
2000, by and among the Company, Axys Pharmaceuticals, Inc., Newco, and Discovery
Partners International, Inc. (the "Agreement"), do hereby certify that:
1. No legal action, suit or proceeding is pending or threatened which
seeks to restraion or prohibit the transactions contemplated by the Agreement on
the date hereof.
2. The representations and warranties of the Company contained in the
Agreement were true and correct on the date of the Agreement and are true and
correct on the date hereof as if made on the date hereof (except for
representations given as of a specific date, which representations are true and
correct as of such date).
3. The Company has performed all covenants and agreements contained in
the Agreement which are required to be performed by the Company on or before the
date hereof.
All capitalized terms not otherwise defined herein have the meanings
assigned to those terms in the Agreements.
[Remainder of page intentionally left blank.]
<PAGE> 97
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of April,
2000.
AXYS ADVANCED TECHNOLOGIES,
INC.
By:
------------------------------------
William J. Newell
Senior Vice President
<PAGE> 98
EXHIBIT D
<PAGE> 99
DISCOVERY PARTNERS INTERNATIONAL, INC.
OFFICER'S CERTIFICATE
I, Jack Fitzpatrick, [SECRETARY AND CHIEF FINANCIAL OFFICER] of
Discovery Partners International, Inc., a Delaware corporation (the "Company"),
in my capacity as an officer of the Company and not in any individual or
personal capacity, in connection with the merger of DPII Newco, LLC ("Newco")
with and into Axys Advanced Technologies, Inc. ("ATT"), pursuant to Section
2.14(c)(xiii) of the Agreement and Plan of Merger, dated as of April ___, 2000,
by and among the Company, AAT, Newco, and Axys Pharmaceuticals, Inc. (the
"Agreement"), do hereby certify that:
1. No legal action, suit or proceeding is pending or threatened which
seeks to restrain or prohibit the transactions contemplated by the Agreement on
the date hereof.
2. The representations and warranties of the Company contained in the
Agreement were true and correct on the date of the Agreement and are true and
correct on the date hereof as if made on the date hereof (except for
representations given as of a specific date, which representations are true and
correct as of such date).
3. The Company has performed all covenants and agreements contained in
the Agreement which are required to be performed by the Company on or before the
date hereof.
All capitalized terms not otherwise defined herein have the meanings
assigned to those terms in the Agreements.
[Remainder of page intentionally left blank.]
<PAGE> 100
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of April,
2000.
DISCOVERY PARTNERS
INTERNATIONAL, INC.
By:
------------------------------------
Jack Fitzpatrick
[SECRETARY AND
CHIEF FINANCIAL OFFICER]
<PAGE> 1
EXHIBIT 2.2
VOTING SHARE PURCHASE AGREEMENT
between
1. DR. HEINRICH ZINSLI, Elblingstrasse 10, 4142 Munchenstein, Switzerland
2. DR. ERNST BURGISSER, Marktgasse 10b, 4310 Rheinfelden, Switzerland
3. DR. HELMUT KESSMANN, Talweg 34, D-79540 Lorrach, Germany
4. CHRISTOPH GRETHER, c/o Grether, Gutzwiller & Forrer, Steinenbachgasslein
34, 4051 Basel, Switzerland
hereinafter referred to as the Sellers
and
DISCOVERY PARTNERS INTERNATIONAL, INC., whose registered office is located at
11149 North Torrey Pines Road, registered in La Jolla, California 92037,
represented by Mr. Riccardo Pigliucci in his capacity as Chief Executive
Officer, duly empowered for the purposes hereof pursuant to the Minutes of
Regular Meeting of the Board of Directors of Discovery Partners International,
Inc., of July 8, 1999, the original of which shall be attached hereto (Appendix
1)
hereinafter referred to as the Buyer
-----------------------------------------
RECITALS
1. Discovery Technologies Ltd. (hereunder referred to as the "Company"), is
a Swiss Company whose registered office is located at Gewerbestrasse 16
in 4123 Allschwil, Switzerland with an issued Voting Share Capital of
CHF 500'000 (five-hundred thousand Swiss Francs) divided into 2'000
registered shares with a nominal value of CHF 100 each and 300
registered shares with a nominal value of CHF 1,000 each and a
Non-Voting Capital of CHF 1,000,000 (one million Swiss Francs) divided
into 1,000 registered Non-Voting Shares with a nominal value of CHF
1,000 each.
The nominal value of all Voting Shares and of all Non-Voting Shares is
fully paid up.
2. At the date hereof, all Voting Shares of the Company are held and they
will be held on the First Completion Date (such as defined in Clause 6.1
hereunder), by the Sellers.
3. The Sellers wish to sell to the Buyer, and the Buyer wishes to buy from
the Sellers all of the Voting Shares of the Company together with all
rights which are now, or at any time hereafter may become, attached to
them. Therefore, under this Agreement the Buyer will buy and the Sellers
will sell 40% of the Voting Share Capital and the Sellers grant to the
Buyer a right to buy the remaining 60% of the Voting Share Capital of
the Company under certain conditions.
<PAGE> 2
Voting Share Purchase Agreement -2-
4. At the date hereof, all Non-Voting Shares of the Company are held by
Novartis. The Buyer intends to buy and Novartis agrees to sell (letter
of May 27, 1999 Appendix 31) under certain conditions all of the
Non-Voting Shares for a price of CHF 2,500,000 (two million five hundred
thousand Swiss Francs) under a Non-Voting Share Purchase agreement to
the Buyer. The Sellers agree to support in good faith the Buyer in the
acquisition of the Non-Voting Shares currently owned by Novartis. The
Sellers agree to avoid everything that could endanger the Purchase of
all of the Non-Voting Shares by the Buyer.
5. The Buyer is aware of the existence of the Option Agreement between
Novartis AG, represented by Novartis Venture Fund, and Discovery
Technologies AG, as well as Mr. Heinrich Zinsli, Mr. Ernst Burgisser,
Mr. Helmut Kessmann and Bureco AG, dated December 22, 1997 (Appendix 29)
NOW THEREFORE, THE BUYER AND THE SELLERS HAVE AGREED AS FOLLOWS:
CLAUSE 1 - DEFINITIONS
Pursuant to this Agreement, the following terms and expressions are defined as
follows:
ACCOUNTS
The audited balance sheet and profit and loss statement of the Company
for the financial year ended December 31, 1998 and the audited balance
sheet and profit and loss statement of the Company drawn up as at June
30, 1999.
VOTING SHARES/VOTING SHARE CAPITAL
Discovery Technologies Ltd. (hereunder referred to as the "Company") has
an issued Voting Share Capital of CHF 500'000 (five-hundred thousand
Swiss Francs) divided into 2'000 registered shares with a nominal value
of CHF 100 each and 300 registered shares with a nominal value of CHF
1,000 each. According to the by-laws, each Voting Share has one vote.
NON-VOTING SHARES/NON-VOTING SHARE CAPITAL
The Company has an issued Non-Voting Share Capital of CHF 1,000,000 (one
million Swiss Francs) divided into 1000 registered Non-Voting Shares
with a nominal value of CHF 1,000 each (currently held by Novartis AG,
represented by Novartis Venture Fund).
EXPIRY DATE OF THE BUYER'S RIGHT TO BUY THE REMAINING 60% OF THE VOTING
SHARE CAPITAL The Expiry Date of the Buyer's right to buy the remaining
60% of the Voting Share Capital is a date not later than December 31,
1999.
COMPLETION DATE
The first Completion Date: The first Completion Date is a date not later
than August 10, 1999.
The second Completion Date: The second Completion Date is a date not
later than January, 31 2000.
<PAGE> 3
Voting Share Purchase Agreement -3-
AGREEMENT
The present Agreement and its appendices.
PARTY OR PARTIES
The Buyer and the Sellers or one of them individually or as the case may
be.
DUE DILIGENCE REVIEW
THE FINANCIAL, LEGAL AND TAX REVIEW REPORT made by ATAG Ernst and Young
on behalf of the Buyer and based on the information given by the
Sellers, laid down in the Report dated July 27, 1999 (attached in
Appendix 6);
THE TECHNICAL DUE DILIGENCE REPORT, made by the Buyer and based on the
information given by the Sellers, laid down in the Report dated July
19/20, 1999 (attached in Appendix 14).
CLAUSE 2 - PURCHASE AND SALE OF THE SHARES
Pursuant to the terms and conditions provided for herein, and with the ordinary
and legal guarantees, the Sellers agree to sell and the Buyer, in consideration
of the representations and warranties given by the Sellers, such as set forth
hereunder, agrees to buy 40% of the Voting Shares making up 40% of the Voting
Share Capital of the Company. Furthermore the Sellers will sell and the Buyer
will buy, under the conditions precedent in Clause 4.6 to 4.15, the remaining
60% of the Voting Share Capital of the Company.
Therefore the Buyer will buy from the Sellers and the Sellers will sell to the
Buyer 40% of the Voting Share Capital (40% of the votes and 40% of the nominal
Voting Share Capital) of the Company upon the First Completion Date. Effective
from the First Completion Date the Sellers grant to the Buyer and the Buyer
receives from the Sellers an exclusive and irrevocable right to buy the rest of
the Voting Share Capital of the Company (60% of the votes and 60% of the nominal
Voting Share Capital) to the terms and conditions provided for herein. The
Sellers will sell upon the Buyer exercising his right to buy the rest of the
Voting Shares to the Buyer. The Buyer's right to buy expires latest on December
31, 1999 and has to be communicated to the Sellers by registered mail, posted
latest on the Expiry Date.
CLAUSE 3 - PURCHASE PRICE
The Total Purchase Price for all of the outstanding Voting Share Capital of the
Company shall not exceed CHF 7,000,000 (seven million Swiss Francs) and is
composed of a fixed amount and of an amount depending on the Company's future
results.
a) PURCHASE PRICE FOR 40% OF THE VOTING SHARE CAPITAL OF THE COMPANY:
<PAGE> 4
Voting Share Purchase Agreement -4-
3.1. The Buyer will buy from the Sellers 40% of the outstanding Voting Share
Capital of the Company for a price of CHF 2,750,000 (two million seven
hundred fifty thousand Swiss Francs) (fixed amount).
3.2. The Buyer shall pay a fixed amount of CHF 2,750,000 (two million seven
hundred and fifty thousand Swiss Francs) upon the First Completion Date.
b) EXCLUSIVE AND IRREVOCABLE RIGHT TO BUY THE REMAINING 60% OF THE VOTING
SHARE CAPITAL OF THE COMPANY:
3.3. If the Buyer exercises his right to buy the remaining 60% of the Voting
Share Capital, the Sellers will sell to the Buyer the remaining 60% of
the Voting Share Capital for a price determined in Clause 3.4 and 3.5
not exceeding CHF 4,250,000 (four million two hundred and fifty thousand
Swiss Francs). The Purchase Price shall be paid in two installments as
follows:
3.4. The Buyer has to pay as a first installment by the later of February 15,
2000 or the day the Company's independent auditors release the December
31, 1999 audited financial statements, up to CHF 2,750,000 (two million
seven hundred fifty thousand Swiss Francs), an amount calculated as a
function (defined in Appendix 2) of total ---------- actual Gross Sales
during calendar 1999 relative to projected Gross Sales of CHF 7,400,000
(seven million four hundred thousand Swiss Francs) and total actual
EBITDA during calendar 1999 relative to projected EBITDA of at least CHF
1,385,000 (one million three hundred eighty five thousand Swiss Francs)
for the same period.
3.5. As a second installment the Buyer has to pay by the later of February
15, 2001 or the day the Company's independent auditors release the
December 31, 2000 audited financial statements, up to CHF 1,500,000 (one
million five hundred thousand Swiss Francs), an amount calculated as a
function (defined in Appendix 2) of total actual Gross Sales during
calendar 2000 relative to projected Gross Sales of CHF 9,900,000 (nine
million nine hundred thousand Swiss Francs) and total actual EBITDA
during calendar 2000 relative to projected EBITDA of at least CHF
2,108,000 (two million one hundred eight thousand Swiss Francs) for the
same period.
3.6. The payments under Clause 3.4 and 3.5 and consequently the Purchase
Price for the remaining 60% of the Voting Share Capital will be reduced
if the projected Gross Sales and EBITDA are not reached by the Company
as provided in Appendix 2.
c) PAYMENT OF PURCHASE PRICE
The Purchase Price referred to in Clauses 3.2, 3.4 and 3.5 hereunder
will be paid by the Buyer by bank checks drawn on a Swiss bank and in
accordance to the allocation instructions of the Sellers according to
Appendix 3. The allocation of the sale price among each of the Sellers
is not the Buyers responsibility.
d) STOCK OPTIONS
<PAGE> 5
Voting Share Purchase Agreement -5-
The first payment (Clause 3.2) shall be paid by bank checks in
accordance with Clause 3.c above. Each Seller may elect to receive the
rest of the payment, first and/or second installment (Clause 3.4 and
3.5) in cash, preferred stock of the Buyer, or a combination thereof.
Preferred stock will be valued at the price of the most recent preferred
series round prior to the Date of the first installment for the first
installment and of the second installment for the second installment.
The Sellers will inform the Buyer in writing whether and how much of the
respective payments shall be paid in preferred stock of the Buyer at
least 30 days prior to the respective payments (installments).
CLAUSE 4 - CONDITIONS PRECEDENT
a) CONDITIONS PRECEDENT FOR THE ENTERING INTO FORCE OF THIS AGREEMENT
This Agreement is entering into force subject to the following
conditions precedent which must all be satisfied in full and
definitively. The conditions precedent under Clause 4.1 to 4.5 have to
be satisfied at the latest on the first Completion Date. If one or more
conditions precedent are not satisfied within the period mentioned
above, this Agreement will automatically become null and void, without
any claim for compensation for any of the Parties, unless the Parties
agree otherwise.
The conditions precedent under Clause 4.1 to 4.4 are, however,
stipulated in the sole interest of the Buyer. Therefore, if any or all
of the conditions precedent have not been satisfied latest on the First
Completion Date, the Buyer may waive the benefit of said conditions
precedent and request the proper performance of the Agreement.
The conditions precedent are:
4.1. The current management agrees to remain with the Company as follows: Mr.
Heinrich Zinsli agrees to sign an employment agreement prior to the
first Completion Date, in a full-time capacity with the Company for a
term of not less than two years, from the First Completion Date. Mr.
Helmut Kessmann agrees to sign an employment agreement prior to the
first Completion Date, in a full-time capacity with the Company for a
term of not less than two years, from the First Completion Date. Mr.
Ernst Burgisser agrees to sign a consulting agreement prior to the First
Completion Date.
4.2. All of the Clause 7 representations, warranties and convenants are true
on the First Completion Date as if made on and as of the First
Completion Date.
4.3. The Sellers agree, that ATAG Ernst & Young AG, Basel will be elected as
an auditor of the Company up from the financial year 1999.
4.4. The Sellers and the Buyer will sign a Shareholders Agreement along the
lines of Appendix 4.
4.5. The Sellers and the Buyer will sign an Escrow Agreement along the lines
of Appendix 5.
<PAGE> 6
Voting Share Purchase Agreement -6-
The Parties will immediately notify each other in writing of the
occurrence of any event resulting in or likely to result in the
non-fulfillment of one of these conditions precedent prior to signing of
this Agreement or prior to the First Completion Date.
b) CONDITIONS PRECEDENT FOR THE RIGHT OF THE BUYER TO BUY THE REMAINING 60%
OF THE VOTING SHARE CAPITAL OF THE COMPANY
The right to buy the remaining 60% of the Voting Share Capital of the
Company is entering into force subject to the following conditions
precedent which must all be satisfied in full and definitively. The
conditions precedent under Clause 4.6 to 4.1 0 have to be satisfied at
the latest on December 31, 1 999. If one or more conditions precedent
are not satisfied within the period mentioned above, this right to buy
granted by the Sellers to the Buyer will automatically become null and
void, without any claim for compensation for any of the Parties, unless
the Parties agree otherwise.
The conditions precedent under Clause 4.6 to 4.8 are, however,
stipulated in the interest of the Sellers. The Sellers agree to support
in good faith the fulfillment of the conditions under Clause 4.6 to 4.8
at the latest on December 31, 1999. In case of non-compliance with this
obligation of good faith by the Sellers, it will be deemed that the
Sellers have waived the benefit of said conditions and the Buyer may
request the proper performance of the agreement.
The conditions precedent under Clause 4.9 to 4.1 0 are, however,
stipulated in the sole interest of the Buyer. Therefore, if any or all
of these conditions precedent have not been satisfied at the latest on
December 31, 1999, the Buyer may waive the benefit of said conditions
precedent and request the proper performance of the Agreement.
The conditions precedent are:
4.6. The Buyer has acquired all of the Company's Non-Voting Share Capital
from Novartis for the amount of CHF 2,500,000 (two million five hundred
thousand Swiss Francs) and Novartis has agreed to a repayment of the
loan in the amount of CHF 2,600,000 (two million six hundred thousand
Swiss Francs). The debt restructuring is at the Buyer's responsibility.
4.7. Basler Kantonalbank (BKB) has agreed to the termination of the guarantee
in the amount of CHF 1,000,000 (one million Swiss Francs) granted by
Novartis AG, represented by Novartis Venture Fund or another appropriate
solution regarding this guarantee has been found.
4.8. BKB has agreed to the continuation of the loan agreement dated November
6, 1997 (line of credit of CHF 3,000,000 (three million Swiss Francs)),
and October 7, 1998 (working capital credit limit of CHF 950'000 (nine
hundred fifty thousand Swiss Francs)) if and when the Company is
controlled by the Buyer. If BKB does not agree to continue these loans,
the Buyer and the Sellers agree to support any other appropriate
solution.
<PAGE> 7
Voting Share Purchase Agreement -7-
4.9. The Company granted to the members of the Scientific Advisory Board
(SAB) and separately to Prof. Gert Folkers the right to participate in
the Non-Voting Capital of the Company. The Sellers confirm, that all the
members of the SAB have waived this right or the Parties have agreed to
another solution.
4.10. Moreover, all individuals or legal entities who have entered into a
contract with the Company, which includes provisions allowing said
persons to terminate the contract if there is a change in the ownership
of the Company or its subsidiaries, have waived said provisions in
writing, or the Sellers will cause them to waive said provisions in
writing by no later than the Second Completion Date, in connection with
the operations provided for under this Agreement.
The Parties will immediately notify each other in writing of the
occurrence of any event resulting in or likely to result in the
non-fulfillment of one of these conditions precedent prior to signing of
this Agreement or prior to the Second Completion Date.
c) CONDITIONS PRECEDENT FOR AN OBLIGATION OF THE BUYER TO PURCHASE THE
REMAINING 60% OF THE VOTING SHARE CAPITAL OF THE COMPANY
The Parties are aware that after completion of the purchase of the first
40% of the Voting Share Capital of the Company, it is in the interest
and intent of both Parties to transfer the remaining 60% of the Voting
Share Capital of the Company from the Sellers to the Buyer. Therefore,
the Buyer agrees to and will be obliged to exercise its right to buy the
remaining 60% of the Voting Share Capital of the Company if the
following conditions precedent are satisfied at the latest on December
31, 1999.
If one or more of the following conditions precedent are not satisfied
within the period mentioned above, the Buyer will not be obliged to
exercise its right to buy the remaining 60% of the Voting Share Capital
of the Company, but may choose to exercise this right at his own
discretion within the confines of Clause 4 section b above (conditions
precedent for the right of the Buyer to purchase the remaining 60% of
the Voting Capital of the Company).
The conditions precedent are:
4.11. The Buyer has completed the sale of its newly created equity capital
which yields net cash proceeds to the Buyer of not less than CHF
16,000,000 (sixteen million Swiss Francs). This sum is in the best
estimation of the Parties equivalent to the highest sum necessary to
purchase all of the Voting and Non-Voting Shares of the Company and to
repay all loans and lines of credit of the Company as per June 30, 1999;
4.12. The transfer of all of the Non-Voting Shares of the Company from
Novartis to the Buyer for a purchase price of CHF 2,500,000 (two million
and five hundred thousand Swiss Francs) has been completed;
4.13. Professor Gert Folkers and all members of the Scientific Advisory Board
have waived their rights in writing to participate in any Voting or
Non-Voting Capital of the Company;
<PAGE> 8
Voting Share Purchase Agreement -8-
4.14. All individuals or legal entities who have entered into contracts with
the Company entitling them to terminate said contracts in case of change
in ownership of the Company or its subsidiaries have waived such rights
in writing;
4.15. All of the representations and warranties set forth in Clauses 7.1 to
7.22 below are true and valid on and as of the Second Completion Date.
The Parties will immediately notify each other in writing of the
occurrence of any event resulting in or likely to result in the
non-fulfillment of one of these conditions precedent prior to signing of
this Agreement or prior to the Second Completion Date.
d) CONSEQUENCES OF NON-SATISFACTION OF CLAUSE 4.11
If the condition precedent set forth in Clause 4.11 above is not
satisfied by December 31, 1999, and as a consequence of this, the Buyer
chooses not to exercise its right to buy the remaining 60% of the Voting
Capital of the Company, then the Sellers will have the right to
repurchase from the Buyer the initial 40% of the Voting Shares of the
Company, for the same price initially paid by the Buyer. This right of
repurchase can only be exercised jointly by all Sellers. This right of
repurchase will expire at the latest on June 30, 2000.
Furthermore if the condition precedent set forth in Clause 4.11 above is
not satisfied by December 31, 1999 and as a consequence of this the
Buyer chooses not to exercise its right to buy the remaining 60 % of the
Voting Share Capital of the Company and the Sellers do not exercise
their right to repurchase the 40 % of the Voting Share Capital of the
Company, then the Buyer enters into the following undertakings:
i) The Buyer enters as party holding 40 % of the Voting Share Capital
into the Option Agreement (Appendix 29);
ii)In case of conflict with other provisions of this agreement and the
shareholder agreement (Appendix 4), the preceding provision shall
prevail.
CLAUSE 5 - INCENTIVE COMPENSATION
5.1. If the Buyer has acquired all of the Voting Share Capital of the
Company, then the Buyer agrees to implement appropriate incentive
compensation programs for the Company's employees and officers.
"Appropriateness" shall be determined by reference to the practices of
other companies owned or controlled by the Buyer. Any equity-based
incentives may be tied to the equity of the Buyer rather than of the
Company.
5.2. The Buyer agrees that the Sellers 1 to 3 stay members of the Board of
Directors until the last payment of the Total Purchase Price has been
paid by the Buyer
<PAGE> 9
Voting Share Purchase Agreement -9-
CLAUSE 6 - COMPLETION OF THE SALE
6.1. Sale of 40% of the Voting Shares will be completed, subject to
fulfillment of the conditions precedent set forth in Clause 4.1 to 4.5
above on a date (the 'First Completion Date') not later than August 10,
1999 at the Basel office of ATAG Ernst & Young.
6.2. The Sale of the remaining 60% of the Voting Share Capital of the Company
will be completed subject to fulfillment of the conditions precedent set
forth in Clause 4.6 to 4.10 above on a date (the 'Second Completion
Date') not later than January 31, 2000 at the Basel office of ATAG Ernst
& Young.
6.3. On the First Completion Date:
a) The Sellers will remit the following documents to the Buyer:
- A copy of the Voting Share Capital register and the Non-Voting
Share Capital register of the Company in which the Buyer has been
registered as the owner of 40 % of the Voting Shares as of the
First Completion Date of this Agreement, signed by the duly
authorized officers of the Company.
- A copy of the Company's records duly updated on the Completion
Date, including the minutes of board meetings and of
shareholders' general meetings.
- A copy of the minutes of the Company's board meeting held at the
latest on the Completion Date approving the Buyer as the new
owner of 40% of the Voting Shares of the Company; said minutes
must be certified true by Mr. Heinrich Zinsli acting as the
Company's Chairman,
- A copy of the extra ordinary general assembly meeting held at the
latest on the first Completion Date approving ATAG Ernst & Young
AG, Basel as an auditor of the Company for the financial year
1999, appointing one new member of the Board of Directors, in
accordance with the instructions given by the Buyer and a second
member replacing Mr. Ch. Grether as a member of the Board of
Directors, in accordance with the instructions given by the
Buyer.
- Letter of resignation of Mr. Christoph Grether as member of the
Board of Directors effective as of the first Completion Date.
- A certified true copy of the Company's Articles of Association
and the most recent extract from the Trade Register.
b) The Sellers will remit the following documents to the Escrow Agent
under the Escrow Agreement (Appendix 5):
- The Voting Share Certificates no. 1, 4, 7, 10 and 13 representing
the Voting Shares nos. 1 to 266, 667 to 933, 1334 to 1600, 2001
to 2119 and 2300 duly endorsed to the Buyer and the Share
Certificates nos. 2, 3, 5, 6, 8, 9, 11 and 12 representing the
Shares nos. 267 to 532, 533 to 666, 934 to 1200, 1201 to 1333,
1601 to 1867, 1868 to 2000, 2120 to 2239 and 2240 to 2299.
<PAGE> 10
Voting Share Purchase Agreement -10-
c) Provided that the Sellers have remitted the documents indicated in
Clause 6.3a) and b) above, the Buyer will make the first Payment as
indicated in Clause 3.l.
6.4. On the Second Completion Date:
a) The Sellers will remit the following documents to the Buyer:
- A copy of the Voting Share Capital register and the Non-Voting
Share Capital register of the Company in which the Buyer has been
registered as the owner of all of the Voting Share Capital and as
the owner of all of the Non-Voting Share Capital as of the Second
Completion Date of this Agreement, signed by the duly authorized
officers of the Company.
- A copy of the minutes of the Company's board meeting held at the
latest on the Second Completion Date approving the Buyer as the
new Owner of all of the Voting Shares and of all of the
Non-Voting Shares of the Company and said minutes must be
certified true by the Company's Chairman.
b) The Sellers will duly endorse the Voting Share Certificates nos. 2,
3, 5, 6, 8, 9, 11 and 12 representing the Voting Shares nos. 267 to
532, 533 to 666, 934 to 1200, 1201 to 1333, 1601 to 1867, 1868 to
2000, 2120 to 2239 and 2240 to 2299 to the Buyer. The Share
Certificates will stay under the Escrow Agreement with the Escrow
agent according to Clause 12.
c) The Buyer will remit the following documents to the Sellers:
- Written Confirmation by the Buyer regarding the purchase of all
of the Non-Voting Capital from Novartis and the repayment of the
loan granted by Novartis to the Company to Novartis (see Clause
4.6).
- Written confirmation by the Buyer regarding the reimbursement of
the credits granted by BKB to the Company or written confirmation
of a new Agreement on the settlement of these credit facilities
(see Clause 4.8).
- Written confirmation by the Buyer that BKB agreed to the
termination of the guarantee granted by Novartis AG, represented
by Novartis Venture Fund of CHF 1,000,000 (one million Swiss
Francs).
d) Provided that the Sellers have remitted the documents indicated in
Clause 6.4a) and fulfilled the requirements in Clause 6.4. b) above,
the Buyer will make payment of the Purchase Price as indicated in
Clause 3.4 and 3.5 and 3.6.
CLAUSE 7 - REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers are deemed to be completely familiar with the Company, its
situation, its activities and commitments and hereby jointly and severally make
the following representations, warranties and covenants to the Buyer, which
representations and warranties and convenants
<PAGE> 11
Voting Share Purchase Agreement -11-
shall survive the First and the Second Completion Date. Any exceptions to the
representations, warranties and convenants of the Sellers accepted by the Buyer
are identified both completely and entirely under this Clause.
The Company was reviewed regarding financial, tax and legal matters from July 5
to 8, 1999. The Report of the Review is enclosed to this Agreement as Appendix 6
and is an integral part of this Agreement. Any fact mentioned in the Review
Report is deemed to be disclosed. The Company was reviewed regarding technical
matters from July 19 to 20, 1999. The technical Due Diligence Report is enclosed
to this Agreement as Appendix 14. Any fact mentioned in the Review Report is
deemed to be disclosed.
7.1. INCORPORATION OF THE COMPANY, COMPANY REGISTERS
The Company is a Swiss company whose registered office is located at
Allschwil. The Company is registered in the Trade Register according to
Swiss Law. The Company has been duly incorporated and is lawfully
established in accordance with Swiss law.
The certified true copy of the Company's Articles of Association and the
extract from the Trade Register, attached as Appendix 7 and 8, are up to
date on the date of signature hereof.
The Company's registers and all other records which must be drawn up or
kept by the Company in accordance with current laws and regulations are
in good order, complete and exact and up to date on the date of
signature hereof.
7.2. AUTHORIZED CAPITAL, SHAREHOLDERS, INVESTMENT SECURITIES, DISTRIBUTIONS
The Company has an issued Voting Share Capital of CHF 500'000 (five
hundred thousand Swiss Francs) which is divided into 2'000 registered
Voting Shares with a nominal value of CHF 100 each and 300 registered
Voting Shares with a nominal value of CHF 1,000 each and a Non-Voting
Share Capital of CHF 1'000'000 (one million Swiss Francs) divided into
1,000 registered Non-Voting Share certificates with a nominal value of
CHF 1,000 each. The Voting Shares and the Non-Voting Shares are validly
issued and fully paid up.
The Company has not given any option, warrant, convertible security, or
other undertaking of any kind whatsoever concerning the issue of new
shares or other investment securities in the Company or concerning a
change in its issued capital except those granted to three members of
the Scientific Advisory Board (Appendix 9) and to Prof. Gert Folkers in
the side letter of February 12, 1999 (Appendix 9).
No payment of dividends and no other distribution of any sums by the
Company has been decided or made on the date of signature hereof and no
payment of dividends or any other distribution of sums will be decided
by the Company for the financial year in progress or for the previous
year until after the Completion Date.
<PAGE> 12
Voting Share Purchase Agreement -12-
7.3. VOTING SHARES
The Sellers warrant that they are the sole owner of the 2,300 Voting
Shares and have good and valid title in all such Voting Shares and have
the authority to and will in fact sell the Voting Shares free and clear
of all liens, options, guarantees, security interests, pledges, priority
rights, pre-emptive rights or other rights, requests, claims or other
restrictions whatsoever to the free transferability thereof. As of the
date of signing of this Agreement the Sellers have the full right and
capacity to sell complete title of the Voting Shares.
7.4. SUBSIDIARIES AND HOLDINGS
The Company does not own any subsidiary or any stake or partnership
interest in other companies or legal entities except of Discovery
Technologies USA LLC and its participation in Myocontract GmbH.
The Company does not belong to any de facto company or joint venture
company and is not associate or member of any partnership or of any
economic interest grouping, pool or consortium or any structure of the
same type except of 'Interessengemeinschaft Innovationszentrum
Nordwestschweiz'.
7.5. ACCOUNTS
A copy of the Company's accounts drawn up as at December 31,1998,
including the balance sheet (assets and liabilities), the notes thereto
and the profit and loss account and the auditors report dated January
28, 1999, as well as the Company's accounts drawn up as at June 30, 1999
including the balance sheet (assets and liabilities), the notes thereto
and the profit and loss account and the auditors report dated July 22,
1999 and the management letter dated July 23, 1 999 are set forth in
Appendix 10 and 11 hereto.
The Accounts have been drawn up in the form required by law and
accurately reflect the Company's financial position and the results of
its operations and have been prepared according to generally accepted
accounting principles and practices in Switzerland. The Company has
consistently applied said principles and practices since the
constitution of the Company.
On the date of December 31, 1998 and June 30, 1999 the Company had no
liabilities or obligations other than those and, as the case may be,
depreciated, in the Accounts.
7.6. PROPERTY AND ASSETS
The Company validly and fully owns all the assets posted in the accounts
of its business and all assets necessary to successfully function.
This property is free of all liens, pledges with or without
dispossession, retention of title, all mortgages, easements, guarantees,
promises, security interest or other encumbrances.
<PAGE> 13
Voting Share Purchase Agreement -13-
7.7. RECEIVABLES AND DEBTS
The Company's trade and other receivables, net of provisions funded for
returns, claims and bad debts, such as they are posted in the Accounts,
and, more generally, all receivables arising since June 30, 1999
(Appendix 12 Debitors and Creditors List as per June 30, 1999), are
valid and can be recovered in full, or have been recovered, within 90
days from the invoice date except of CHF 34,000 (thirty four thousand
Swiss Francs) of Myocontract GmbH.
The Company does not owe any sum whatsoever and has not undertaken to
pay any sum whatsoever to any of its shareholders, company directors,
employees, sales representatives, agents or distributors, whether past
or present, or to any of their spouses, children or relatives or any
person acting on their behalf or any legal entity in which the Seller
directly or indirectly holds more than 10% of the voting rights,
otherwise than in payment for services provided at customary commercial
rates and board fees. Appendix 13 (List of sums owed to EPR
Labautomation AG) identifies all sums owed to any spouses, children or
relatives of any of its shareholders, company directors, employees,
sales representatives, agent or distributors and to any legal entity in
which the Seller directly or indirectly holds more than 10% of the
voting rights.
No shareholder, company director, employee, sales representative, agent
or distributor and none of their spouses, children or relatives or
anybody acting on their behalf or in which the Seller directly or
indirectly holds more than 1 0% of the voting rights owes any sums
whatsoever to the Company, or has, within the past 18 months, had any
such liability relieved other than by cash payment in full.
Any interest paid to the Company's shareholders prior to the date hereof
has never exceeded the maximum amount authorised by current tax law.
7.8. STOCKS AND WORK IN PROCESS
The Company's stocks and work in process posted in the Accounts
constitute the whole of the Company's stocks and work in process as at
June 30, 1999.
Said stocks are posted in the Accounts at their cost price or their
present market value, if less.
The Company does not keep goods in consignment owned by third parties or
which are subject to retention of title clauses in its stocks except of
the chemical libraries of the four providers Analyticon AG, Bionet
Research Ltd., ComGenex Inc., SPECS and BioSPECS bv.
7.9. OFF BALANCE SHEET COMMITMENTS, GUARANTEES, ENDORSEMENTS. SECURITY
INTERESTS
There are no off balance sheet commitments as per June 30, 1999.
<PAGE> 14
Voting Share Purchase Agreement -14-
The Company has not given any guarantee, security interest or
endorsement relating to the fulfillment of obligations contracted by
third parties (including by its shareholders, company directors or by
the members of its own personnel) except the guaranties given by BKB for
the rent of the building in Allschwil (CHF 140,000 (hundred and forty
thousand Swiss Francs)) and for the credit card of Mr. Tim Brooks (CHF
20'000 (twenty thousand Swiss Francs)).
7.10. BANKRUPTCY PROCEEDINGS
The Company is not insolvent and is not concerned by any receivership or
liquidation subject to court supervision or any conciliation, voluntary
settlement or other bankruptcy proceedings provided for under current
law.
There is nothing, at the date hereof, to lead one to believe that the
Company may subsequently be insolvent or be concerned by any bankruptcy
proceedings other than the auditor's report regarding the Company's
Financials as per December 31, 1998 (Appendix 10) and the auditor's
report regarding the Company's Financials as per June 30, 1999 (Appendix
11)
7.11. DISPUTES/PRODUCT LIABILITIES
The Company is not involved in any litigation or disputed claims, in
particular, in court, administrative or arbitration proceedings and is
not subject to any court, administrative or other supervision. It is not
concerned by any claim or other request that may entail such proceedings
or such supervision except of the potential cases 'Roche' and 'Liconic'
mentioned in the financial, legal and tax review report and the
technical due diligence report (Appendix 6 and 14).
The Sellers are not aware of any current or potential claim with regard
to product liability or of facts on which such a claim could be based.
7.12. ENVIRONMENTAL LAW
The Company's activities have always been and are, at today's date,
carried out in compliance with current laws and regulations concerning
the protection of the environment. The Company has obtained all permits,
licenses or other authorizations required under current laws and
regulations and has made all the necessary declarations in relations
thereto.
7.13. CONTRACTS
All the written or oral contracts, agreements, undertakings or
arrangements entered into by the Company constitute valid and binding
undertakings for each of the parties in question. None of said
undertakings was entered into in breach of current laws or regulations.
The Company, as well as the other concerned parties, have duly fulfilled
<PAGE> 15
Voting Share Purchase Agreement -15-
their obligations under these undertakings except of the cases 'Roche'
and 'Liconic' mentioned above.
Said undertakings all concern the Company's day-to-day business and were
entered into at arm's length as part of the Company's usual business.
There are no outstanding written or oral contracts, agreements,
undertakings or arrangements entered into by the Company which have a
contractual value in excess of CHF 25,000 except of those mentioned in
Appendix 15.
The Company is not a party to any agreement and has not entered into any
undertaking which cannot be freely terminated by the Company, without
compensation and subject to less than three months' notice except of
those mentioned in Appendix 16.
There are no agreements entered into between the Company and the Sellers
or between the Company and other companies or entities in which the
Sellers are directly or indirectly involved or which are directly or
indirectly involved in the Sellers except of the contracts with EPR
Labautomation AG mentioned in Appendix 17.
7.14. LEASING AGREEMENTS
The Company is not a party to any leasing agreement except of the two
agreements with Credit Suisse Leasing dated January 14, 1999 and April
29, 1999 (Appendix 18 and 19).
7.15. TRADEMARKS, LOGOS, PATENTS, INDUSTRIAL OR INTELLECTUAL PROPERTY RIGHTS
The Company does not own any trademark, logo, patent, software or other
industrial or intellectual property right, other than those identified
in Appendix 20.
The Company has not infringed and will not infringe to its best
knowledge any right whatsoever owned by a third party concerning any
patent, trademark logo, software, business name, corporate name or other
industrial or intellectual property right.
7.16. INSURANCE
The Company is adequately insured with creditworthy insurance companies
for the risks and the amounts that companies engaged in similar
activities normally insure for and, in particular, for the risks
inherent in its civil liability and its product liability except of
Discovery Technologies USA LLC and of activities in the US and in
Canada.
The Company has validly fulfilled all its obligations to said insurance
companies, in particular, with regard to the declaration of risks or
losses and the payment of premiums.
On the date hereof, any declared or reasonably foreseeable loss is duly
covered by the insurance policies taken out by the Company.
<PAGE> 16
Voting Share Purchase Agreement -16-
7.17. TAXES, SOCIAL SECURITY CONTRIBUTIONS, CUSTOMS
The Company has duly filed with the relevant government services within
the required time limits all its tax, special tax, social security and
customs returns of any kind as well as all statements or other documents
required under the laws and regulations concerning its tax, special tax,
social security and customs expenses, and has kept a copy of the
original documents filed.
The Company has duly paid the relevant government services within the
required time limits all the taxes, contributions, duties and other tax,
special tax, social security or customs expenses owed by it except
social security contributions in an amount of CHF 13,740.20 as included
in the audited Company's financials as per June 30, 1999.
7.18. PERSONNEL
As of August 1, 1999, the Company employs 22 employees. The entire
personnel and all the outstanding employment agreements are listed in
Appendix 21.
The Company has not granted any benefits to its employees which go
beyond the usual standards for similar Companies in Switzerland or
fringe benefits in excess of those listed in Appendix 22.
The Company has not entered into any profit sharing scheme, incentive
scheme or other labour agreement apart from those listed in Appendix 23.
The Company is up to date with all its legal, regulatory and contractual
obligations towards its personnel, both on individual and group levels,
and in particular with regard to employee representative bodies. It has
complied with its obligations with regard to health and safety of
working conditions.
No retirement gratuity has been granted or promised to any past or
present employee or company director of the Company except of those
granted in the retirement plan (bel etage) for management (Appendix 24).
7.19. POWERS/BANK ACCOUNTS
Appendix 25 lists the names and addresses of each person who has
received a general or special power of attorney from the Company or its
legal representatives, including any power concerning the Company's bank
accounts. All Company bank accounts are listed in Appendix 26.
7.20. MAJOR EVENTS
No fact or event of any kind whatsoever, apart from as specified in this
Agreement, is likely to have a negative effect on the Company's assets,
liabilities, business or activities. No fact or event of this type
exists which the buyer may not have been informed about
<PAGE> 17
Voting Share Purchase Agreement -17-
and which one could reasonably consider, given the nature or importance
thereof, that it would have affected the Buyer's decision to buy the
Voting Shares at the agreed price.
7.21. INTERIM PERIOD
a) The Company has and the Sellers will cause the Company to carry
out until the Second Completion Date its activities solely in the
normal and usual course of business, with care and
responsibility, so as to protect its relations and reputation
vis-a-vis third parties, the public authorities and any other
persons maintaining business relations with it.
Since June 30,1999, especially there has not been and will not be
one of the following operations:
(i) any change in the Company's financial position, earnings,
assets, liabilities, business, operations or budgets other
than normal changes falling within the normal scope of
business,
(ii) any purchase or sale of stock by the Company,
(iii) any issue, division or pooling by the Company of shares or
other investment securities, any granting of rights or
options to buy or to subscribe for shares of the Company
or that may grant the right to buy or subscribe for stock
representing a share of the Company's capital,
(iv) any payment of dividends, prepaid dividends or other sums
(in particular by capital reduction or redemption) and
more generally any operation that may lead to the
allocation of assets, and/or earnings, and/or reserves or
premiums between the Company's shareholders.
(v) any loan granted or promised by the Company or any
increase of its overall indebtedness by loans, overdrafts,
credit facilities or otherwise,
(vi) any security, guarantee or endorsement granted by the
Company to third parties,
(vii) any assumption by the Company of any obligation or
liabilities other than normal obligations or liabilities
assumed in the normal course of business,
(viii) any expiry, termination, waiver or any amendment or breach
of any contract or other undertaking to which the Company
is a party, other than in the normal course of business,
except Liconic.
(ix) any increase or promise to increase salaries of the
Company's employees, sales representatives, agents,
distributors and company directors or benefits to which
they are entitled (bonus, profit sharing schemes, pension,
retirement or other annuities or benefits of the same
kind) other than normal increases, not in
<PAGE> 18
Voting Share Purchase Agreement -18-
excess of 10%, justified by the individual results of
employees or imposed by employment contracts,
(x) any cancellation or waiver by the Company of one of its
receivables or claims against third parties,
(xi) any lien, pledge with or without dispossession, mortgage,
easement, security, promise, security interest or other
right or encumbrance granted on a tangible or intangible
asset of the Company,
(xii) any operation or undertaking which has been carried out or
assumed outside the normal course of the Company's
day-to-day business,
(xiii) any undertaking relating to all or part of the items
mentioned in (i) to (xiii) above or which could bring
about the occurrence of one of these items,
(xiv) any element or fact that may harm the Company's reputation
vis-a-vis its customers and suppliers, in particular,
(xv) any industrial disturbance, conflict, strike or similar
event affecting the Company.
7.22. HTS FACTORY
In addition to the representations and warranties set forth in Clause
7.1 to 7.21 above Mr. Ernst Burgisser makes the following
representations and warranties: Appendix 27 contains the latest
estimates of the Company to complete the development, installation and
debugging of the Company's HTS factory. These estimates are sufficient.
The Rolimans purchased from EPR Labautomation Ltd. by the Company are
free of defects in material and workmanship and, if operated and
maintained in accordance with any written instructions provided, shall
perform in accordance with its specifications for a period of 12 months
from the date of installation.
If requested by the Buyer, Mr. Ernst Burgisser, through EPR
Labautomation or other resources, agrees to provide ongoing maintenance
and support of the units at fair market conditions once the initial 12
months have elapsed.
Drawings and all of the engineering documentation and lists of suppliers
and subcontractors relating to the Roliman will be placed in escrow
prior to the Second Completion Date by Mr. Ernst Burgisser. In the case
of non-compliance with this obligation, the Buyer has the right to
retain the payments to Mr. Ernst Burgisser under Clause 3.4 and 3.5 and
3.6 until this obligation is fulfilled.
<PAGE> 19
Voting Share Purchase Agreement -19-
7.23. COMPLETION DATE
All the representations and warranties set forth in Clauses 7.1 to 7.22
above are true and valid on and as of the date of this Agreement and
also will be true and valid on the First and Second Completion Date.
CLAUSE 8 - INDEMNIFICATION OF THE BUYER
a) THE SELLERS' OBLIGATIONS
8.1. The Sellers irrevocably agree and undertake to compensate the Buyer by
reducing the Purchase Price or by way of damages, at the Buyer's option,
of any and all loss, liability or costs incurred, of any kind
whatsoever, including reasonable advisers' and legal fees and costs,
which the Buyer or the Company may bear or incur by reason of any
fraudulent breach in the covenants, representations or warranties given
in this Agreement by the Sellers, provided that the Buyer shall notify
the Seller in writing of such breach or inaccuracy. latest on June 30,
2001. The Sellers are liable jointly and severally and without
limitation for fraudulent breach as mentioned under this Clause.
8.2. The liability of the Sellers in respect of any breach of contract or
breach of duty or fault or negligence or otherwise whatsoever arising
out of or in connection with this engagement will be considered a breach
by all Sellers. The liability under this Clause 8.2 will be limited in
total to the amount of the Total Purchase Price to be paid by the Buyer
to the Sellers. The Sellers agree and undertake to compensate the Buyer
by reducing the Purchase Price or by way of damage, at the buyer's
option up to this limit including reasonable advisers' and legal fees
and costs, which the Buyer or the Company may bear or incur by reason of
any breach in the convenants, representations or warranties given in
this Agreement by the Sellers, provided that the Buyer shall notify the
Sellers in writing of such breach or inaccuracy latest on June 30, 2001.
Up to the Total Purchase Price to be paid by the Buyer, the Sellers are
jointly and severally liable to the Buyer. However the liability of each
Seller is limited to the amount of the purchase price allocated to him.
If the Buyer is unable to collect compensation under Clause 8.2 from one
Seller, he cannot go after the other Sellers for his share.
The Buyer agrees to reduce the liability of Mr. Helmut Kessmann under
this Clause by the amount of Income Tax paid by the latter on this
transaction which is not refunded back to Mr. Helmut Kessmann as a
consequence of the reduction in the net purchase price paid. Mr. Helmut
Kessmann must make all reasonable efforts to receive the maximum tax
refund available.
8.3 For any breach of the representations and warranties set forth in Clause
7.22 (HTS factory), Mr. Ernst Burgisser shall be solely liable under the
same terms as stated in Clause 8.1 and 8.2 above.
<PAGE> 20
Voting Share Purchase Agreement -20-
b) THE BUYER'S OBLIGATIONS
8.4. The Buyer will notify the Sellers in writing within 30 days of the
discovery of any fact or an event that may bring the Sellers' warranty
into play. This notice shall include a short description of the claim,
fact or event in question and the amount or estimated amount of the loss
incurred or which could be sustained by the Buyer or the Company.
In case of non compliance with these obligations, the Buyer will not be
entitled to any compensation by the Sellers.
CLAUSE 9 - NON COMPETE
9.1. Each selling founder of the Company (Sellers 1 to 3) undertakes, for a
three year period as from the First Completion Date (i) not to hire
without the prior written consent of the Buyer any current or future
member of the Company's personnel, (ii) not to carry on directly or
indirectly, as a proprietor or an employee, a business which competes
with that of the Company except those listed in Appendix 28 and (iii)
not to become, directly or indirectly, a shareholder, company director,
de jure or de facto director, consultant, representative or distributor
of any company which has a business which competes with that of the
Company without the prior written consent of the Buyer.
9.2. In the event that any one of the selling founders of the Company
(Sellers 1 to 3) breach any of their obligations contained in the
previous provisions of Clause 9, they shall immediately, without any
action or formality being required to be taken or fulfilled forfeit for
the benefit of Buyer (or at Buyer's discretion for the benefit of the
Company) an immediately payable contractual penalty of CHF 50,000 for
each infringement and of CHF 1,000 for each day such infringement will
continue, without any damages or losses being required to be proven. In
addition, the Buyer reserves its full right to claim indemnification for
any damage or loss incurred by the Buyer and the Company and its full
right to seek an injunction.
9.3. In addition to any other remedies, the Buyer may deduct any monies it is
owed under Clause 9 from any contingent Purchase Price payments not yet
made.
CLAUSE 10 - CONFIDENTIALITY
Each party undertakes not to make any public disclosure or to disclose the
details of the financial terms of this Agreement to any third party whomsoever
and in particular to the Company's personnel without the other Party's prior
agreement in writing, except to the extent strictly required by the law and to
information to be given by the Buyer to potential investors .
<PAGE> 21
Voting Share Purchase Agreement -21-
CLAUSE 11 -ASSIGNMENT OF THE AGREEMENT
The Sellers may not assign or delegate all or part of their rights or
obligations hereunder without the prior agreement in writing of the Buyer.
CLAUSE 12 - GUARANTEES BY THE BUYER
All the Voting Shares of the Company remain in escrow in accordance with the
Escrow Agreement (Appendix 5).
CLAUSE 13 - TERM
This Agreement shall be binding from the date of signature hereof.
CLAUSE 14 - GOVERNING LAW AND COMPETENT JURISDICTION
This Agreement shall be governed, with regard to the interpretation and
performance thereof, by Swiss law.
The exclusive place of jurisdiction is Allschwil.
CLAUSE 15 - DISPUTES
With regard to any dispute relating to the interpretation, performance or
termination of this Agreement, the parties will make their best efforts to come
to an amicable settlement, in particular, by organising a mediation meeting
between their respective advisers, if this may be useful.
CLAUSE 16 - MODIFICATIONS
Any modifications of this Agreement must be in writing and signed by both
parties.
Executes in 6 original counterparts of which one copy for each of the Sellers,
one copy for the Buyer and one copy for the Company's documentation.
SELLERS: BUYER:
Date: 10/8/99 Date: 10/8/99
/s/ illegible /s/ illegible
- ---------------------------- -----------------------------
<PAGE> 22
Voting Share Purchase Agreement -22-
Date: 10/8/99
/s/ illegible
- -------------------------------
Date: 10/8/99
/s/ illegible
- -------------------------------
Date: 10/8/99
/s/ illegible
- -------------------------------
<PAGE> 1
23 December 1999
EXHIBIT 2.3
SECOND CLOSING PROTOCOL
of December 23, 1999, at the Offices of ATAG Ernst & Young AG
in Basel
relating to THE VOTING SHARE PURCHASE AGREEMENT OF AUGUST 10, 1999
regarding the Voting Share Capital of Discovery Technologies Ltd, Allschwil
(hereinafter "the Company")
SECOND CLOSING:
PURCHASE OF THE REMAINING 60% OF THE VOTING SHARE CAPITAL OF THE COMPANY.
between
1. DR. HEINRICH ZINSLI, Elblingstrasse 10, 4142 Munchenstein, Switzerland
2. DR. ERNST BURGISSER, Marktgasse 10b, 4310 Rheinfelden, Switzerland
3. DR. HELMUT KESSMANN, Talweg 34, D-79540 Lorrach, Germany
4. CHRISTOPH GRETHER, c/o Grether, Gutzwiller & Forrer, Steinenbachgasslein
34, 4051 Basel, Switzerland
hereinafter referred to as the Sellers
and
DISCOVERY PARTNERS INTERNATIONAL, INC. whose registered office is located at
9640 Towne Centre Drive, San Diego, CA 92121, U.S.A.
hereinafter referred to as the Buyer
PRESENT AND REPRESENTING THE BUYER:
ATAG Ernst & Young AG, Basel, represented by
Beatrice Van der Haegen-Graber, Attorney-at-Law, and
Christoph M. Gass, Attorney-at-Law,
hereinafter referred to as the Representative
of the Buyer
PRESENT AND REPRESENTING THE SELLERS:
Dr. Heinrich Zinsli;
Dr. Ernst Burgisser and
Dr. Helmut Kessmann
Christoph Grether is represented
by Dr. H. Zinsli
hereinafter referred to as the Sellers
<PAGE> 2
-2-
Whereas, effective as of August 10, 1999, the Sellers and the Buyer entered into
a Voting Share Purchase Agreement regarding 40% of the Voting Share Capital of
the Company and regarding the right to buy the remaining 60% of the Voting Share
Capital (hereinafter "the Voting Share Purchase Agreement");
Whereas, effective as of August 10, 1999, the Sellers and the Buyer entered into
an Escrow Agreement regarding the Voting Share Certificates of the Company
(hereinafter "the Escrow Agreement");
Whereas, effective as of August 10, 1999, the Sellers and the Buyer entered into
a Shareholders Agreement regarding the execution of shareholders' rights in the
Company (hereinafter "the Shareholders Agreement");
Whereas the Buyer and the Company entered into a loan agreement on December 16,
1999.
Whereas Dr. E. Burgisser has placed the drawings and all of the engineering
documentation and lists of suppliers and subcontractors relating to the Roliman
in escrow with ATAG Ernst & Young according to the escrow agreement signed on
December 23, 1999;
Whereas, the Representative of the Buyer is duly authorized by the Buyer and Dr.
H. Zinsli as representative of Christoph Grether is duly authorized by Christoph
Grether to make the following declarations on behalf of the Buyer and of the
Seller;
Now and hereby, the Representative of the Buyer and the Sellers make the
following declarations on behalf of the Buyer and the Sellers and witness each
other's declarations on behalf of the Buyer and the Sellers:
1. EXERCISING OF THE RIGHT TO BUY THE REMAINING 60% OF THE VOTING SHARE
CAPITAL OF THE COMPANY BY THE BUYER
Through the letter addressed to the Sellers dated December 21, 1999, the Buyer
has exercised his rights to buy the remaining 60% of the Voting Share Capital of
the Company.
2. FULFILLMENT OF THE CONDITIONS PRECEDENT ACCORDING TO THE VOTING SHARE
PURCHASE AGREEMENT
The Buyer and the Sellers confirm to each other that the Conditions precedent
according to Clause 4 b) and 4 c) of the Voting Share Purchase Agreement are
satisfied in full and definitively by latest December 31, 1999 according to the
following listing. As long as a condition precedent agreed in the Voting Share
Purchase Agreement is not listed
<PAGE> 3
-3-
hereunder, the Buyer and the Sellers agree to have waived said condition by
signing the Second Closing Protocol.
1. The Buyer has acquired all of the Company's Non Voting Share Capital
from Novartis for the amount CHF 2,500,000 (two million five hundred
Swiss francs) in accordance with the Non-Voting Share Purchase Agreement
signed;
2. Novartis has agreed to a debt restructuring for the loan granted to the
Company in the amount of CHF 2,600,000 (two million six hundred thousand
Swiss francs) with letter dated December 8, 1999;
3. Basler Kantonalbank (hereinafter BKB) has agreed to the termination of
the guarantee in the amount of CHF 1,000,000 (one million Swiss francs)
granted by Novartis AG represented by Novartis venture fund as per
December 31, 1999 with letter dated December 13, 1999;
4. An appropriate solution regarding the continuation of all loan
agreements between BKB and the Company has been agreed between the
Company and BKB in line with the following concept: DTL repays CHF 1
million, DTL invests CHF 2 million in fixed money for 12 months, DTL
gets a credit frame agreement against the CHF 2 million in fixed money.
The current agreements will terminate December 31, 1999 and the new
agreement will start January 1, 2000. A contract draft is being
elaborated by BKB.
5. The Sellers confirm that Professor Gert Folkers and all members of the
Scientific Advisory Board have waived their right to participate in the
Non-Voting Capital of the Company;
6. The Sellers confirm that all individuals or legal entities who have
entered into a contract with the Company which includes provisions
allowing said persons to terminate the contract if there is a change in
the ownership of the Company or its subsidiaries have waived said
provisions in writing;
7. The Sellers confirm, that all representations and warranties set forth
in Clause 7.1 to 7.22 of the Voting Share Purchase Agreement are true
and valid on and as of the Second Completion Date.
3. DECLARATION OF THE REPRESENTATIVE OF THE BUYER
a) The Representative of the Buyer acknowledges that the Sellers have
remitted to the Representative of the Buyer the following documents in
accordance with Clause 6.4.a) of the Voting Share Purchase Agreement:
- - A copy of the Voting Share Capital register and the Non-Voting Share
Capital register of the Company in which the Buyer has been registered
as the owner of all of the Voting Share Capital and as the owner of all
of the Non-Voting Share
<PAGE> 4
-4-
capital as of the Second Completion Date, signed by the duly authorized
officers of the Company.
- - a copy of the minutes of the Company's board meeting held at the latest
on the second completion date approving the Buyer as the new owner of
all of the Voting Shares and of all of the Non-Voting Shares of the
Company and said minutes must be certified true by the Company's
chairman.
b) The representative of the Buyer acknowledges that the Sellers have
remitted to the representatives of the Buyer the following share
certificates duly endorsed to the Buyer in accordance with Clause 6. 4
b) of the Share Purchase Agreement and clause 1 of the Escrow Agreement.
- - Certificates no. 8 and 9, representing the voting shares no. 1601 to no.
1867 and no. 1868 to no. 2000 of the Company.
- - Certificates no. 2, 3, 11 and 12 representing the Voting Shares no. 267
to 532, 533 to 666, 2120 to 2239, 2240 to 2299 of the Company.
- - Certificates no. 5 and 6, representing the voting shares no. 934 to 1200
and 1201 to 1333.
The Share Certificates will, under the Escrow Agreement, stay with the Escrow
agent.
4. DECLARATION OF THE SELLERS:
a) The Sellers acknowledge that the Representative of the Buyer has
remitted to the Sellers a copy of the duly signed Non-Voting Share
Purchase Agreement between Novartis and the Buyer, dated December 23,
1999.
b) The Sellers acknowledge,
- - that they are themselves (represented by Dr. H. Zinsli) in contact with
BKB regarding the settlement of the loan agreements (dated Nov. 6, 1997
and Oct. 7, 1998) and regarding a new agreement on credit facilities
(see above Clause 2.4)
- - that they are already in possession of a written confirmation by BKB
regarding the termination of the guarantee granted by Novartis AG,
represented by Novartis Venture Fund of CHF 1,000,000 (one million Swiss
Francs) dated December 16, 1999
Therefore the Sellers renounce to receive from the Buyer further written
confirmations according to Clause 6.4 c) of the Voting Share Purchase
Agreement on the Second Closing.
<PAGE> 5
-5-
5. MUTUAL DECLARATION OF THE REPRESENTATIVE OF THE BUYER AND THE SELLERS
Now and herewith, the Voting Share Purchase Agreement for the remaining 60% of
the Voting Shares of the Company has been executed and the Buyer is the owner of
all of the Voting Shares of the Company. All of the Voting Shares of the Company
have been duly placed in escrow with ATAG Ernst & Young AG, Basel, as Escrow
Agent.
Executed in 6 original counterparts of which one copy for each of the Parties
and one copy for the Company's documentation.
Basel, December 23, 1999
/s/ Dr. Heinrich Zinsli /s/ Christoph M. Gass and Beatrice
- -------------------------------------- --------------------------------------
Dr. Heinrich Zinsli Van der Haegen-Graber
Representative of the Buyer
ATAG Ernst & Young AG,
represented by
Christoph M. Gass and Beatrice Van
der Haegen-Graber
/s/ Dr. Ernst Burgisser
- --------------------------------------
Dr. Ernst Burgisser
/s/ Dr. Helmut Kessmann
- --------------------------------------
Dr. Helmut Kessmann
/s/ Dr. Heinrich Zinsli
- --------------------------------------
Dr. Heinrich Zinsli
as representative of Christoph Grether
<PAGE> 1
EXHIBIT 2.4
NON-VOTING SHARE PURCHASE AGREEMENT
BETWEEN
NOVARTIS AG, whose registered office is located at Schwarzwaldallee 215 in 4002
Basel, Switzerland, represented by Dr. Rudolf Gygax from Berne in Bottmingen
duly authorized by special power of attorney (Appendix 1)
hereinafter referred to as the Seller
and
DISCOVERY PARTNERS INTERNATIONAL, INC. whose registered office is located at
9640 Towne Centre Drive, San Diego, CA, 92121 USA, represented by Mr. Jack
Fitzpatrick in his capacity as Chief Financial Officer,
hereinafter referred to as the Buyer
------------------------------
RECITALS
WHEREAS Discovery Technologies Ltd. (hereinafter referred to as the "Company"),
is a Swiss Company whose registered office is located at Gewerbestrasse 16,
CH4123 Allschwil, Switzerland;
WHEREAS the Non-Voting Share Capital of the Company, currently held by the
Seller, shall be sold to the Buyer according to this Agreement;
WHEREAS the Seller, in its letter to the Company dated December 8, 1999, has
confirmed its intention to terminate the subordinated loan in the amount of CHF
2,600,000 granted to the Company in the Loan Agreement dated May 30, 1997, and
to replace it by an ordinary loan in the same amount;
WHEREAS the Seller has granted towards the Basler Kantonalbank (BKB) a warranty
in the amount of CHF 1,000,000 for the benefit of the Company that expires on
December 31, 1999.
<PAGE> 2
2 12/22/99
WHEREAS all parties of the agreement dated December 15, 1997 concerning the
creation of participation capital and options (Novartis AG, Discovery
Technologies AG, Dr. H. Zinsli, Dr. E. Burgisser, Dr. H. Kessmann and Bureco AG)
have waived in writing their right to exercise the put or call options according
to said agreement.
NOW AND THEREFORE, THE BUYER AND THE SELLER AGREE AS FOLLOWS:
CLAUSE 1 - DEFINITIONS
In this Agreement, the following words and expressions shall have the following
meanings:
"COMPLETION DATE" means a date not later than December 31, 1999 on which the
sale of the Non-Voting Shares shall be completed in the offices of ATAG Ernst &
Young AG in Basel.
"NON-VOTING SHARE CAPITAL" means the amount ("Partizipationskapital") of CHF
1,000,000 (one million Swiss Francs) divided into 1,000 registered Non-Voting
Shares with a nominal value of CHF 1,000 each, pursuant to articles 656a to 656g
of the Swiss Code of Obligations (OR).
"NON-VOTING SHARES" mean the securities ("Partizipationsscheine"), representing
the Non-Voting Share Capital, numbered 1 to 1,000, currently issued to the
Seller, as mentioned in the share register ("Aktienbuch").
"AGREEMENT" means the present agreement and its appendices.
"PARTY" or "PARTIES" mean the Buyer and the Seller jointly or one of them
individually as the case may be.
CLAUSE 2 - PURCHASE AND SALE OF THE NON-VOTING SHARES
Pursuant to the terms and conditions provided for herein, the Seller agrees to
sell and the Buyer agrees to buy on the Completion Date as defined in clause 4
hereunder the Non-Voting Shares making up all of the Non-Voting Share Capital of
the Company.
CLAUSE 3 - PURCHASE PRICE
3.1. The Purchase Price for the Non-Voting Shares shall amount to CHF
2,500,000 (two and a half million Swiss Francs).
3.2. The Purchase Price will be paid by the Buyer on the Completion Date on a
bank account to be specified by the Seller:
<PAGE> 3
3
UBS AG, Zurich, account no 230-10112504.0, held by Novartis Pharma AG
(please add note: 'betr. Novartis Venture Fund, z.H. P. Kopp').
CLAUSE 4 - COMPLETION OF THE SALE
4.1. The sale of the Non-Voting Shares shall be completed in the offices of
ATAG Ernst & Young AG in Basel on the Completion Date.
4.2. Upon completion the Seller shall remit to the Buyer the following
documents:
- The Non-Voting Share certificates number 1 to 10 duly endorsed
to the Buyer.
- All other deeds and documents that the Buyer may reasonably
require to complete the operations referred to herein,
4.3 Provided that the Seller has remitted the documents listed in clause 4.2
above, the Buyer shall pay the total purchase price as defined in clause
3.1 above.
CLAUSE 5 - REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller warrants that he is the sole owner of the Non-Voting Shares and has
good and valid title in the certificates and has the authority to and will in
fact sell the Non-Voting Shares free and clear of all liens, options,
guarantees, security interests, pledges, priority rights, pre-emptive rights or
other rights, requests, claims or other restrictions whatsoever to the free
transferability thereof. As of the date of signature of this Agreement the
Seller has the full right and capacity to sell unrestricted title of the
Non-Voting Shares.
CLAUSE 6 - INDEMNIFICATION OF THE BUYER
6.1. THE SELLER'S OBLIGATIONS
The Seller irrevocably agrees and undertakes to compensate the Buyer at
the Buyer's option by way of damages up to 100% for all losses,
liabilities or costs incurred, of any kind whatsoever, including,
without limitation, reasonable advisory and legal costs, which the Buyer
or the Company may incur or ultimately bear due to any breach of the
covenants, representations or warranties given by the Seller in this
Agreement, provided that the Buyer shall notify the Seller in writing of
such breach or inaccuracy within two years of the Completion Date.
6.2. THE BUYER'S OBLIGATIONS
The Buyer undertakes to notify the Seller in writing of any claim
concerning a fact or an event that may trigger a warranty of the Seller.
This notice shall include a short
<PAGE> 4
4
description of the claim, fact or event in question and the estimated
amount of the loss incurred or to be ultimately borne by the Buyer or
the Company.
CLAUSE 7 - CONFIDENTIALITY
Until the Completion Date, each party undertakes not to disclose the existence
and/or the contents of this Agreement and the operations contemplated hereunder
to any third party whomsoever, including, without limitation, the Company's
personnel without the other Party's prior written consent, except to the extent
strictly required by the Buyer to carry out all checks and investigations
reasonably necessary in connection with this Agreement.
CLAUSE 8 - TERM
This Agreement shall come into effect as per the date of its signature.
CLAUSE 9 - VARIATION
Any modification or amendment to this Agreement must be made in writing and duly
signed by the Parties.
CLAUSE 10 - GOVERNING LAW AND PLACE OF JURISDICTION
This Agreement shall be construed and interpreted according to the laws of
Switzerland.
Exclusive place of jurisdiction shall be BASEL, SWITZERLAND.
<PAGE> 5
5
This agreement is executed in 3 original counterparts of which one copy shall be
for the Seller, one for the Buyer and one for the Company's documentation.
Date: 23.12.99 Date: 23.12.99
NOVARTIS AG DISCOVERY PARTNERS
REPRESENTED BY INTERNATIONAL, INC.
NOVARTIS VENTURE FUND
/s/ illegible /s/ Jack Fitzpatrick
- ------------------------------ ------------------------------
<PAGE> 1
RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1
OF DISCOVERY PARTNERS INTERNATIONAL, INC.,
a California Corporation
The undersigned Jack Fitzpatrick hereby certifies that:
ONE: He is the duly elected and acting Vice President and Secretary of
said corporation.
TWO: The Articles of Incorporation of said corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is Discovery Partners International, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is
Twenty One Million Thirty-Three Thousand Three Hundred Thirty-Three (21,033,333)
shares. Twelve Million (12,000,000) shares shall be Common Stock and Nine
Million Thirty-Three Thousand Three Hundred Thirty-Three (9,033,333) shares
shall be Preferred Stock, of which Two Million Five Hundred Thousand (2,500,000)
shares shall be Series A Preferred Stock, Two Million (2,000,000) shares shall
be Series B Preferred Stock, Three Hundred Thirty-Three Thousand Three Hundred
Thirty-Three (333,333) shares shall be Series C Preferred Stock, Two Million
Five Hundred Thousand (2,500,000) shares shall be Series D Preferred Stock, and
One Million Seven Hundred Thousand (1,700,000) shares shall be Series E
Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
1. Dividend Provisions.
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence in accordance with Section 6 hereof, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred
<PAGE> 2
Stock and Series E 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 or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, at the rate of $0.14 per
share of Series A Preferred Stock per annum, $0.21 per share of Series B
Preferred Stock per annum, $0.42 per share of Series C Preferred Stock per
annum, $0.504 per share of Series D Preferred Stock per annum, and $0.56 per
share of Series E Preferred Stock per annum (subject to appropriate adjustments
for stock splits, stock dividends, combinations or other recapitalizations)
("Preferred Dividend Preference") payable when, as and if declared by the Board
of Directors. Such dividends shall not be cumulative. No cash dividends shall be
declared or paid with respect to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock unless at the same time a like proportionate cash dividend for
the same dividend period, ratably in proportion to the respective annual
dividend rates set forth in above, is declared and paid with respect to the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock.
(b) After paying the full Preferred Dividend Preference in any
calendar year, whenever this corporation declares a further dividend in such
calendar year, the holders of Common Stock and the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive dividends
ratably based upon the number of shares of Common Stock held by each (assuming
conversion of all of such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock).
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of any
additional series of Preferred Stock that may from time to time come into
existence in accordance with Section 6 hereof, the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E 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 by reason of their ownership thereof, an amount per
share equal to the sum of (A) $2.00 for each outstanding share of Series A
Preferred Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations and hereinafter referred to
as the "Original Series A Issue Price"), (B) $3.00 for each outstanding share of
Series B Preferred Stock (subject to appropriate adjustments for stock splits,
stock dividends, combinations or other recapitalizations and hereinafter
referred to as the "Original Series B Issue Price"), (C) $6.00 for each
outstanding share of Series C Preferred Stock (subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations and hereinafter referred to as the "Original Series C Issue
Price"), (D) $7.20 for each outstanding share of Series D Preferred Stock
(subject to appropriate adjustments for stock splits, stock dividends,
combinations or other recapitalizations and hereinafter referred to as the
"Original Series D Issue Price"), (E) $8.00 for each outstanding share of Series
E Preferred Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other
2.
<PAGE> 3
recapitalizations and hereinafter referred to as the "Original Series E Issue
Price") and (F) an amount equal to declared but unpaid dividends on such share
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, as applicable. If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then, subject to the rights of any
additional series of Preferred Stock which may from time to time come into
existence, the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock in proportion to the
aggregate liquidation preferences of the respective series, and ratably among
the holders of that series in proportion to the amount of such stock owned by
each such holder.
(b) After the distributions described in subsection (a) above have
been paid, and subject to the rights of any additional series of Preferred Stock
which may from time to time come into existence, the remaining assets of the
corporation available for distribution to shareholders shall be distributed
among the holders of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common
Stock pro rata based on the number of shares of Common Stock held by each
(assuming conversion of all such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock).
(c) A consolidation or merger of this corporation with or into any
other corporation or corporations in which the shareholders of this corporation
immediately prior to such consolidation or merger own less than fifty percent
(50%) of the voting power of the successor corporation or corporations
immediately after such consolidation or merger, or a sale, conveyance or
disposition of all or substantially all of the assets of this corporation or the
effectuation by the corporation of a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
corporation is disposed of, shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 2, unless, in each such case, the
value of the consideration to be received by the holders of Series A Preferred
Stock, the holders of Series B Preferred Stock, the holders of Series C
Preferred Stock, the holders of Series D Preferred Stock and the holders of
Series E Preferred Stock, without treating such transaction as a liquidation,
dissolution or winding up within the meaning of this Section 2, exceeds $10.00
per share (subject to appropriate adjustments for stock splits, stock dividends
or combinations).
(d) Whenever a distribution provided for in subsections (a) and (b)
above or a transaction described in subsection (c) above shall be payable in
securities or property other than cash, the value of such distribution or the
consideration to be received in such transaction shall be the fair market value
of such securities or other property as determined in good faith by the Board of
Directors.
3.
<PAGE> 4
3. Redemption.
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence in accordance with Section 6 hereof, at
any time after July 17, 2002, on the date within sixty (60) days (the
"Redemption Date") after the receipt by this corporation of a written request
from the holders of not less than a majority of the then outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock treated as a single class that all
or some of such holders' shares be redeemed ("Redemption Notice"), and
concurrently with surrender by such holders of the certificates representing
such shares, this corporation shall, to the extent it may lawfully do so, redeem
the shares specified in such request by paying in cash therefor (i) a sum equal
to $2.00 per share of Series A Preferred Stock (as adjusted for any stock
dividends, combinations, splits or recapitalizations with respect to such
shares) plus all declared but unpaid dividends on such shares (the "Series A
Redemption Price"), (ii) a sum equal to $3.00 per share of Series B Preferred
Stock (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Series B Redemption Price"), (iii) a sum equal to
$6.00 per share of Series C Preferred Stock (as adjusted for any stock
dividends, combinations, splits or recapitalizations with respect to such
shares) plus all declared but unpaid dividends on such shares (the "Series C
Redemption Price"), (iv) a sum equal to $7.20 per share of Series D Preferred
Stock (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Series D Redemption Price") and (v) a sum equal
to $8.00 per share of Series E Preferred Stock (as adjusted for any stock
dividends, combinations, splits or recapitalizations with respect to such
shares) plus all declared but unpaid dividends on such shares (the "Series E
Redemption Price"). Any redemption effected pursuant to this subsection 3(a)
shall be made on a pro rata basis among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock in proportion to the number of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and/or Series E Preferred Stock then held by such
holders.
(b) As used herein and in subsection (3)(c) below, the term
"Redemption Date" shall refer to each "Redemption Date" and the term "Redemption
Price" shall refer to each "Series A Redemption Price," "Series B Redemption
Price," "Series C Redemption Price," "Series D Redemption Price" and "Series E
Redemption Price." Subject to the rights of series of Preferred Stock which may
from time to time come into existence in accordance with Section 6 hereof, at
least fifteen (15) but no more than thirty (30) days prior to each 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 the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or
Series E Preferred Stock to be redeemed, at the address last shown on the
records of this corporation for such holder, notifying such holder of the
redemption to be effected, specifying the number of shares to be redeemed from
such holder, the Redemption Date, the Redemption Price, the place at which
payment may be obtained and calling upon such holder to surrender to this
corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in subsection (3)(c), on or after the
Redemption Date, each holder of Series A Preferred
4.
<PAGE> 5
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and/or Series E 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
Redemption Price 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 cancelled. 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.
(c) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock designated for
redemption in the Redemption Notice as holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock (except the right to receive the Redemption Price
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. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, if the funds of the corporation
legally available for redemption of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock on any Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed based upon their holdings of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock. The shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. Subject to the rights of series
of Preferred Stock which may from time to time come into existence, at any time
thereafter when additional funds of the corporation are legally available for
the redemption of shares of Preferred Stock, such funds will immediately be used
to redeem the balance of the shares which the corporation has become obliged to
redeem on any Redemption Date but which it has not redeemed.
4. Conversion. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Subject to subsection 4(c), each share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock plus all declared but
unpaid dividends on each share shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share and prior to the
close of business on any Redemption Date, if any, as may have been fixed in any
Redemption Notice with respect to such share, at the office of this corporation
or any transfer agent for the particular series of Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing the Original Series A Issue Price, Original Series B Issue Price,
Original Series C Issue Price, Original Series D Issue Price
5.
<PAGE> 6
or Original Series E Issue Price, as applicable, and all declared but unpaid
dividends on such share by the Conversion Price applicable to such share,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share for shares of
Series A Preferred Stock shall be the Original Series A Issue Price, the initial
Conversion Price per share for shares of Series B Preferred Stock shall be the
Original Series B Issue Price, the initial Conversion Price per share for shares
of Series C Preferred Stock shall be the Original Series C Issue Price, the
initial Conversion Price per share for shares of Series D Preferred Stock shall
be the Original Series D Issue Price and the initial Conversion Price per share
for shares of Series E Preferred Stock shall be the Original Series E Issue
Price; provided, however, that the Conversion Price for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be subject to adjustment as set forth
in subsection 4(d).
(b) Automatic Conversion. Each share of 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 shares immediately
upon the earlier of (i) except as provided below in subsection 4(c), the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 under the Securities
Act of 1933, as amended (a "Firm Public Offering"), the public offering price of
which is not less than $10.00 per share (adjusted to reflect subsequent
combinations, stock splits, stock dividends, or other recapitalizations) and
$15,000,000 in the aggregate or (ii) the receipt (either in connection with the
corporation's sale of its Common Stock in a Firm Public Offering, the public
offering price of which is not less than $8.00 per share (adjusted to reflect
subsequent combinations, stock splits, stock dividends, or other
recapitalizations), or else not in connection with any public offering) of the
approval or consent to such conversion by at least sixty-seven percent (67%) of
the then-outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock voting together as a class. In the case of approvals or consents to
conversion in connection with the corporation's sale of its Common Stock in a
Firm Public Offering, the public offering price of which is less than $7.20 per
share (adjusted to reflect subsequent combinations, stock splits, stock
dividends, or other recapitalizations), (iii) each share of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall automatically
be converted into shares of Common Stock at the Conversion Price at the time in
effect for such shares immediately upon the receipt of the approval or consent
to such conversion by at least sixty-seven percent (67%) of the then-outstanding
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock voting together as a class, and (iv) each share of Series D
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such shares immediately upon the
receipt of the approval or consent to such conversion by at least eighty percent
(80%) of the then-outstanding shares of Series D Preferred Stock voting together
as a separate series. In the case of approvals or consents to conversion in
connection with the corporation's sale of its Common Stock in a Firm Public
Offering, the public offering price of which is less than $8.00 per share
(adjusted to reflect subsequent combinations, stock splits, stock dividends, or
other recapitalizations) (v) each share of Series E Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such shares immediately upon the receipt of the
approval or consent to such conversion by at least eighty percent (80%) of the
then-outstanding shares of Series E Preferred
6.
<PAGE> 7
Stock voting together as a separate series. (Provided, however, that all
conversions in connection with a Firm Public Offering shall be subject to the
last sentence of subsection 4(c)).
(c) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the particular series of
Preferred Stock, and shall give written notice 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 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
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 offering
of securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments of Preferred Stock. The Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the date upon
which any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock were first
issued (the "Purchase Date" with respect to such series), any Additional Stock
(as defined below) without consideration or for a consideration per share less
than the applicable Conversion Price for such series in effect immediately prior
to the issuance of such Additional Stock, the applicable Conversion Price for
such series of Preferred Stock in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this clause (i)) be adjusted to
a price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including, without limitation, the number of
shares of Common Stock issuable upon the conversion of the Preferred Stock) plus
the number of shares of Common Stock that the aggregate consideration received
by the corporation for such issuance would purchase at the Conversion Price
existing immediately prior to such issuance of Additional Stock; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including, without limitation, the number of
shares of Common Stock issuable upon the conversion of the Preferred Stock) plus
the number of shares of such Additional Stock.
7.
<PAGE> 8
(B) No adjustment of the Conversion Price for any 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 (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward, whichever occurs first. Except to the limited
extent provided for in subsections (E)(3) and (E)(4), no adjustment of such
Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(C) In the case of the issuance of 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 (whether before, on or after the
applicable Purchase Date) 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, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) 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(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon the issuance
of such options or rights plus the minimum exercise price provided in such
options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be
8.
<PAGE> 9
received by the corporation (without taking into account potential antidilution
adjustments) 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(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of shares
of Common Stock deliverable or 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 antidilution provisions thereof, the applicable
Conversion Price of the Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, 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.
(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 applicable Conversion Price of the Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options or
rights related to such securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) 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.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1)
and (2) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this
corporation after the applicable Purchase Date other than:
(A) Common Stock issued pursuant to a transaction described
in subsection 4(d)(iii) hereof,
(B) shares of Common Stock issued upon conversion of
Preferred Stock,
(C) shares of Common Stock issuable or issued to employees,
consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
corporation at any time when the total number of shares of Common Stock so
issuable or issued (and not repurchased at cost by the corporation in connection
with the termination of employment) does not exceed 2,450,000 (subject to
9.
<PAGE> 10
appropriate adjustments for stock splits, stock dividends, combinations or other
recapitalizations),
(D) shares of Common Stock issued or issuable in connection
with licensing, joint venture, research/development, joint marketing,
collaboration or other such transactions, if in transactions with primarily
non-financing purposes,
(E) shares of Common Stock issued or issuable in connection
with a bona fide business acquisition by this corporation, whether by merger,
consolidation, acquisition of assets, purchase or exchange of stock or
otherwise, or
(F) shares of Common Stock issued or issuable (I) in a
public offering before or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock or (II) upon exercise of
warrants or rights granted to underwriters in connection with such a public
offering.
(iii) In the event the corporation should at any time or from
time to time after the applicable Purchase Date 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 applicable Conversion Price of each series of the Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the applicable Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the applicable Conversion Price for the Preferred Stock 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.
(e) 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(d)(iii), then, in each such
case for the purpose of this subsection 4(e), the holders of the 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 the corporation
into which their shares of Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the corporation
entitled to receive such distribution.
10.
<PAGE> 11
(f) Recapitalizations. 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 in Section 2) provision shall be made so that the holders of
the Preferred Stock shall thereafter be entitled to receive upon conversion of
the Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion 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 the
Preferred Stock after the recapitalization (including adjustment of the
applicable Conversion Price then in effect and the number of shares purchasable
upon conversion of the Preferred Stock) to the end that the provisions of this
Section 4 shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by 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 Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the 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 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 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 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 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 for such series of Preferred Stock 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 Preferred Stock.
(i) 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 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
11.
<PAGE> 12
class or any other securities or property, or to receive any other right, this
corporation shall mail to each holder of 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.
(j) 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 the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the 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 the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
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, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these articles.
(k) Notices. Any notice required by the provisions of this Section 4
to be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
5. Voting Rights.
(a) General. Each holder of shares of Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Preferred Stock
could then be converted, and 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 shareholders' 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. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
(b) The number of directors of this corporation shall be seven (7).
Notwithstanding subsection 5(a) above, the holders of Preferred Stock, voting as
a single class, shall be entitled to elect five (5) directors of the
corporation, and the holders of Common Stock, voting as a separate class, shall
be entitled to elect two (2) directors. At any meeting held for the purpose of
electing or nominating directors, the presence in person or by proxy of the
holders of a majority of the Preferred Stock then outstanding shall constitute a
quorum of the Preferred Stock for the election or nomination of directors to be
elected or nominated solely by the holders of Preferred Stock. At any meeting
held for the purpose of electing directors, the presence in person or by proxy
of the holders of a majority of the Common Stock then outstanding shall
constitute a quorum of the Common Stock for the election of directors to be
elected solely by the
12.
<PAGE> 13
holders of Common Stock. A vacancy in any directorship elected by the holders of
Preferred Stock shall be filled only by vote of the holders of Preferred Stock
and any vacancy in any directorship elected by the holders of Common Stock shall
be filled only by vote of the holders of Common Stock.
6. Protective Provisions. So long as any shares of 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 sixty
percent (60%) of the then outstanding shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock voting together as a single class:
(a) sell, convey, or otherwise dispose of or encumber (other than
pursuant to a credit arrangement in the ordinary course of business) 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) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of; or
(b) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock; or
(c) increase (other than by redemption or conversion) the total
number of authorized shares of Common Stock, Preferred Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock; or
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock with respect to voting,
dividends or upon liquidation; or
(e) increase the authorized number of directors of the corporation.
In addition, this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
at least eighty percent (80%) of the then outstanding shares of Series D
Preferred Stock, amend the articles of incorporation so as to, adversely
affecting the Series D Preferred Stock in a different manner than other shares
of Preferred Stock, do any of the things described in Section 903(a)(1) through
903(a)(7) of the California Corporations Code with respect to either the
Preferred Stock or the Series D Preferred Stock, all pursuant to and within the
meanings of Sections 903(a) and 903(b) of the California Corporation Code as in
effect on January 1, 1998.
In addition, this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
at least eighty percent (80%) of the then outstanding shares of Series E
Preferred Stock, amend the articles of incorporation so as to, adversely
affecting the Series E Preferred Stock in a different manner than other shares
of Preferred Stock, do any of the things described in Section 903(a)(1) through
13.
<PAGE> 14
903(a)(7) of the California Corporations Code with respect to either the
Preferred Stock or the Series E Preferred Stock, all pursuant to and within the
meanings of Sections 903(a) and 903(b) of the California Corporation Code as in
effect on January 1, 1998.
7. Status of Converted or Redeemed Stock. In the event any shares of
Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section
4 hereof, the shares so converted or redeemed shall be cancelled and shall not
be issuable by the corporation. The Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by this
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, granting this corporation rights of first refusal on stock
transfers or pursuant to stock purchase agreements with employees, consultants,
officers or directors providing for repurchase of shares at cost upon
termination of employment or services, Sections 502 and 503 of the California
General Corporation Law shall not apply in whole or in part with respect to such
repurchases.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
Section 1. The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. This corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
applicable limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the corporation and its
shareholders.
14.
<PAGE> 15
Section 3. Any repeal or modification of the foregoing provisions of
this Article IV by the shareholders of this corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification.
***
THREE: The foregoing amendment has been duly approved by the Board of
Directors.
FOUR: The foregoing amendment has been duly approved by the required
vote of shareholders in accordance with Sections 902 and 903 of the California
Corporations Code. The number of outstanding shares of the corporation is
2,000,000 shares of Series A Preferred Stock, 2,000,000 shares of Series B
Preferred Stock, 333,333 shares of Series C Preferred Stock, 2,228,945 shares of
Series D Preferred Stock and 1,789,068 shares of Common Stock. No shares of
Series E Preferred Stock are outstanding. The number of shares voting in favor
of the amendment equaled or exceeded the vote required. The percentage vote
required was (i) more than 50% of the outstanding shares of Common Stock, Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock voting together as a single class, (ii) more than 50% of the
outstanding shares of Common Stock voting as a separate class, and (iii) at
least 60% of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, voting together as a single class.
15.
<PAGE> 16
IN WITNESS WHEREOF, the undersigned has executed this certificate on
April 4, 2000.
/s/ Jack Fitzpatrick
-----------------------------------------------
Jack Fitzpatrick, Vice President and Secretary
The undersigned certifies under penalty of perjury that he has read the
foregoing Restated Articles of Incorporation and knows the contents thereof, and
that the statements therein are true.
Executed at San Diego, California, on April 4, 2000.
/s/ Jack Fitzpatrick
-----------------------------------------------
Jack Fitzpatrick
[SIGNATURE PAGE TO RESTATED
ARTICLES OF INCORPORATION]
<PAGE> 17
CERTIFICATE OF AMENDMENT OF RESTATED ARTICLES OF INCORPORATION
OF DISCOVERY PARTNERS INTERNATIONAL, INC.
a California Corporation
The undersigned Jack Fitzpatrick hereby certifies that:
ONE: He is the duly elected and acting Vice President and
Secretary of Discovery Partners International, Inc., a California corporation.
TWO: Article III, Section A of the Articles of Incorporation of
said corporation is amended to read in full as follows:
(A) Classes of Stock. This corporation is authorized to issue
two classes of stock to be designated, respectively, "Common
Stock" and "Preferred Stock." The total number of shares which
the corporation is authorized to issue is Thirty Million
Thirty-Three Thousand Three Hundred Thirty-Three (30,033,333)
shares. Twenty-One Million (21,000,000) shares shall be Common
Stock and Nine Million Thirty-Three Thousand Three Hundred
Thirty-Three (9,033,333) shares shall be Preferred Stock, of
which Two Million Five Hundred Thousand (2,500,000) shares shall
be Series A Preferred Stock, Two Million (2,000,000) shares shall
be Series B Preferred Stock, Three Hundred Thirty-Three Thousand
Three Hundred Thirty-Three (333,333) shares shall be Series C
Preferred Stock, Two Million Five Hundred Thousand (2,500,000)
shares shall be Series D Preferred Stock, and One Million Seven
Hundred Thousand (1,700,000) shares shall be Series E Preferred
Stock.
THREE: Article III, Section B(4)(d)(ii)(C) of the Articles of
Incorporation of said corporation is amended to read in full as follows:
(C) shares of Common Stock issuable or issued to employees,
consultants, directors or vendors (if in transactions with
primarily non-financing purposes) of this corporation directly or
pursuant to a stock option plan or restricted stock plan approved
by the Board of Directors of this corporation at any time when
the total number of shares of Common Stock so issuable or issued
(and not repurchased at cost by the corporation in connection
with the termination of employment) does not exceed 3,250,000
(subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations),
FOUR: The foregoing amendment of Articles of Incorporation has
been duly approved by the Board of Directors of said corporation.
<PAGE> 18
FIVE: The foregoing amendment of Articles of Incorporation was
duly approved by vote of the holders of the requisite number of shares of said
corporation in accordance with Sections 902 and 903 of the California General
Corporation Law. The number of outstanding shares of the corporation is
2,000,000 shares of Series A Preferred Stock, 2,000,000 shares of Series B
Preferred Stock, 333,333 shares of Series C Preferred Stock, 2,228,945 shares of
Series D Preferred Stock, 1,392,503 shares of Series E Preferred Stock and
1,833,713 shares of Common Stock. The percentage vote required was (i) more than
50% of the outstanding shares of Common Stock, Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock voting together as a single class, (ii) more than 50% of the
outstanding shares of Common Stock voting as a separate class, and (iii) at
least 60% of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, voting
together as a single class. The number of shares voting in favor of the
foregoing amendment equaled or exceeded the vote required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 19
IN WITNESS WHEREOF, the undersigned has executed this certificate on
April 17, 2000 and declares under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of his own knowledge.
/s/ Jack Fitzpatrick
----------------------------------------------
Jack Fitzpatrick, Vice President and Secretary
[SIGNATURE PAGE TO CERTIFICATE OF AMENDMENT TO
RESTATED ARTICLES OF INCORPORATION OF
DISCOVERY PARTNERS INTERNATIONAL, INC.]
3
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
IRORI
ARTICLE I - OFFICES
Section 1. The principal executive offices of IRORI, a California
corporation (the "Corporation"), shall be at such place inside or outside the
State of California as the Board of Directors may determine from time to time.
Section 2. The Corporation may also have offices at such other places as
the Board of Directors may from time to time designate, or as the business of
the Corporation may require.
ARTICLE II - SHAREHOLDERS' MEETINGS
Section 1. Annual Meetings. The annual meeting of the shareholders of
the Corporation for the election of directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting shall be held between 30 and 120 days following the end of
the fiscal year of the Corporation and at such place as may be determined by the
Board of Directors. If the annual meeting of the shareholders be not held as
herein prescribed, the election of directors may be held at any meeting
thereafter called pursuant to these Bylaws.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose whatsoever, unless otherwise prescribed by statute, may be called at
any time by the Chairman of the Board, the President, or by the Board of
Directors, or by one or more shareholders holding not less than ten percent
(10%) of the voting power of the Corporation.
Section 3. Place. All meetings of the shareholders shall be at any place
within or without the State of California designated either by the Board of
Directors or by written consent of the holders of a majority of the shares
entitled to vote thereat, given either before or after the meeting. In the
absence of any such designation, shareholders' meetings shall be held at the
<PAGE> 2
principal executive office of the Corporation.
Section 4. Notice. Notice of meetings of the shareholders of the
Corporation shall be given in writing to each shareholder entitled to vote,
either personally or by first-class mail (unless the Corporation has 500 or more
shareholders determined as provided by the California Corporations Code on the
record date for the meeting, in which case notice may be sent by third-class
mail) or other means of written communication, charges prepaid, addressed to the
shareholder at his address appearing on the books of the Corporation or given by
the shareholder to the Corporation for the purpose of notice. Notice of any such
meeting of shareholders shall be sent to each shareholder entitled thereto not
less than ten (10) (or, if sent by third-class mail, 30) nor more than 60 days
before the meeting. Said notice shall state the place, date and hour of the
meeting and, (1) in the case of special meetings, the general nature of the
business to be transacted, and no other business may be transacted, or (2) in
the case of annual meetings, those matters which the Board of Directors, at the
time of the mailing of the notice, intends to present for action by the
shareholders, but subject to Section 601(f) of the California Corporations Code
any proper matter may be presented at the meeting for shareholder action, and
(3) in the case of any meeting at which directors are to be elected, the names
of the nominees intended at the time of the mailing of the notice to be
presented by management for election.
Section 5. Adjourned Meetings. Any shareholders' meeting may be
adjourned from time to time by the vote of the holders of a majority of the
voting shares present at the meeting either in person or by proxy. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.
Section 6. Quorum. The presence in person or by proxy of the persons
entitled to vote a majority of the shares entitled to vote at any meeting
constitutes a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present
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<PAGE> 3
may continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but no other
business may be transacted, except as provided above.
Section 7. Consent to Shareholder Action. Any action which may be taken
at any meeting of shareholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding shares 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;
provided, however, that (1) unless the consents of all shareholders entitled to
vote have been solicited in writing, notice of any shareholder approval without
a meeting by less than unanimous written consent shall be given as required by
the California Corporations Code, and (2) directors may not be elected by
written consent except by unanimous written consent of all shares entitled to
vote for the election of directors.
Any written consent may be revoked by a writing received by the
Secretary of the Corporation prior to the time that written consents of the
number of shares required to authorize the proposed action have been filed with
the Secretary.
Section 8. Waiver of Notice. The transactions of any meeting of
shareholders, however called and noticed, and whenever held, shall be as valid
as though had at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting, or an approval of the minutes
-3-
<PAGE> 4
thereof. All such waivers, consents, or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 9. Voting. The voting at all meetings of shareholders need not
be by ballot, but any qualified shareholder before the voting begins may demand
a stock vote whereupon such stock vote shall be taken by ballot, each of which
shall state the name of the shareholder voting and the number of shares voted by
such shareholder, and if such ballot be cast by a proxy, it shall also state the
name of any such proxy.
At any meeting of the shareholders, every shareholder having the right
to vote shall be entitled to vote in person, or by proxy appointed in a writing
subscribed by such shareholder and bearing a date not more than eleven (11)
months prior to said meeting, unless the writing states that it is irrevocable
and satisfies Section 705(e) of the California Corporations Code, in which event
it is irrevocable for the period specified in said writing and said Section
705(e).
Section 10. Record Dates. In the event the Board of Directors fixes a
day for the determination of shareholders of record entitled to vote as provided
in Section 1 of Article V of these Bylaws, then, subject to the provisions of
the General Corporation Law of the State of California only persons in whose
name shares entitled to vote stand on the stock records of the Corporation at
the close of business on such day shall be entitled to vote.
If no record date is fixed:
The record date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day notice is given or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held;
The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be
-4-
<PAGE> 5
the day on which the first written consent is given; and
The record date for determining shareholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days.
Section 11. Cumulative Voting for Election of Directors. Provided the
candidate's name has been placed in nomination prior to the voting and one or
more shareholders has given notice at the meeting prior to the voting of the
shareholder's intent to cumulate the shareholder's votes, every shareholder
entitled to vote at any election for directors shall have the right to cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among as many candidates as the shareholder shall
think fit. The candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected.
-5-
<PAGE> 6
ARTICLE III - BOARD OF DIRECTORS
Section 1. Powers. Subject to any limitations in the Articles of
Incorporation or these Bylaws and to any provision of the California
Corporations Code requiring shareholder authorization or approval for a
particular action, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by, or under the direction of, the
Board of Directors. The Board of Directors may delegate the management of the
day-to-day operation of the business of the Corporation to a management company
or other person provided that the business and affairs of the Corporation shall
be managed and all corporate powers shall be exercised, under the ultimate
direction of the Board of Directors.
Section 2. Number, Tenure and Qualifications. The authorized number of
directors of this Corporation shall be not less than three (3) nor more than
five (5), the exact number of directors to be fixed from time to time within
such limit by a duly adopted resolution of the Board of Directors or
shareholders. The exact number of directors presently authorized shall be three
(3) until changed within the limits specified above by a duly adopted resolution
of the Board of Directors or shareholders.
Directors shall hold office until the next annual meeting of
shareholders and until their respective successors are elected. If any such
annual meeting is not held, or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose. Directors need not be shareholders.
Section 3. Regular Meetings. A regular annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide for other regular meetings from time to time by
resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called at
-6-
<PAGE> 7
any time by the Chairman of the Board, or the President, or any Vice President,
or the Secretary, or any two (2) directors. Written notice of the time and place
of all special meetings of the Board of Directors shall be delivered personally
or by telephone or telegraph to each director at least forty-eight (48) hours
before the meeting, or sent to each director by first-class mail, postage
prepaid, at least four (4) days before the meeting. Such notice need not specify
the purpose of the meeting. Notice of any meeting of the Board of Directors need
not be given to any director who signs a waiver of notice, whether before or
after the meeting, or who attends the meeting without protesting prior thereto,
or at its commencement, the lack of notice to such Director.
Section 5. Place of Meetings. Meetings of the Board of Directors may be
held at any place within or without the State of California, which has been
designated in the notice, or if not stated in the notice or there is no notice,
the principal executive office of the Corporation or as designated by the
resolution duly adopted by the Board of Directors.
Section 6. Participation by Telephone. Members of the Board of Directors
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another.
Section 7. Quorum. A majority of the directors shall constitute a
quorum. In the absence of a quorum, a majority of the directors present may
adjourn any meeting to another time and place. If a meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the reconvened meeting to the
directors who were not present at the time of adjournment.
Section 8. Action at Meeting. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
-7-
<PAGE> 8
of the required quorum for such meeting.
Section 9. Waiver of Notice. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, are as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 10. Action Without Meeting. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 11. Removal. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony. The entire Board of Directors or any
individual director may be removed from office without cause by a vote of
shareholders holding a majority of the outstanding shares entitled to vote at an
election of directors; provided, however, that unless the entire Board is
removed, no individual director may be removed when the votes cast against
removal, or not consenting in writing to such removal, would be sufficient to
elect such director if voted cumulatively at an election at which the same total
number of votes cast were cast (or, if such action is taken by written consent,
all shares entitled to vote were voted) and the entire number of directors
authorized at the time of the director's most recent election were then being
elected.
In the event an office of a director is so declared vacant or in case
the Board or any one or more directors be so removed, new directors may be
elected at the same meeting.
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Section 12. Resignations. Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the Corporation, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
Section 13. Vacancies. Except for a vacancy created by the removal of a
director, all vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual, regular or special meeting of the shareholders. Vacancies created by the
removal of a director may be filled only by approval of the shareholders. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote.
Section 14. Compensation. No stated salary shall be paid directors, as
such, for their services, but, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of such Board; provided that nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
Section 15. Committees. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of
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<PAGE> 10
members or alternate members of a committee requires the vote of a majority of
the authorized number of directors. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have all the authority of the
Board of Directors in the management of the business and affairs of the
Corporation, except with respect to (a) the approval of any action requiring
shareholders' approval or approval of the outstanding shares, (b) the filling of
vacancies on the Board or any committee, (c) the fixing of compensation of
directors for serving on the Board or a committee, (d) the adoption, amendment
or repeal of Bylaws, (e) the amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable, (f) a distribution
to shareholders, except at a rate or in a periodic amount or within a price
range determined by the Board, and (g) the appointment of other committees of
the Board or the members thereof.
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ARTICLE IV - OFFICERS
Section 1. Number and Term. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer, all of which shall be
chosen by the Board of Directors. In addition, the Board of Directors may
appoint a Chairman of the Board, one or more Vice Presidents and such other
officers as may be deemed expedient for the proper conduct of the business of
the Corporation, each of whom shall have such authority and perform such duties
as the Board of Directors may from time to time determine. The officers to be
appointed by the Board of Directors shall be chosen annually at the regular
meeting of the Board of Directors held after the annual meeting of shareholders
and shall serve at the pleasure of the Board of Directors. If officers are not
chosen at such meeting of the Board of Directors, they shall be chosen as soon
thereafter as shall be convenient. Each officer shall hold office until his
successor shall have been duly chosen or until his removal or resignation.
Section 2. Inability to Act. In the case of absence or inability to act
of any officer of the Corporation and of any person herein authorized to act in
his place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer, or any director or other person
whom it may select.
Section 3. Removal and Resignation. Any officer chosen by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of all the members of the Board of Directors.
Any officer chosen by the Board of Directors may resign at any time by
giving written notice of said resignation to the Corporation. Unless a different
time is specified therein, such resignation shall be effective upon its receipt
by the Chairman of the Board, the President, the Secretary or the Board of
Directors.
Section 4. Vacancies. A vacancy in any office because of any cause may
be filled by the
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Board of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board.
Section 6. President. The President shall be the general manager and
chief executive officer of the Corporation, subject to the control of the Board
of Directors, and as such shall preside at all meetings of shareholders, shall
have general supervision of the affairs of the Corporation, shall sign or
countersign or authorize another officer to sign all certificates, contracts,
and other instruments of the Corporation as authorized by the Board of
Directors, shall make reports to the Board of Directors and shareholders, and
shall perform all such other duties as are incident to such office or are
properly required by the Board of Directors.
Section 7. Vice President. In the absence of the President, or in the
event of such officer's death, disability or refusal to act, the Vice President,
or in the event there be more than one Vice President, the Vice Presidents in
the order designated at the time of their selection, or in the absence of any
such designation, then in the order of their selection, shall perform the duties
of President, and when so acting, shall have all the powers and be subject to
all restrictions upon the President. Each Vice President shall have such powers
and discharge such duties as may be assigned from time to time by the President
or by the Board of Directors.
Section 8. Secretary. The Secretary shall see that notices for all
meetings are given in accordance with the provisions of these Bylaws and as
required by law, shall keep minutes of all meetings, shall have charge of the
seal and the corporate books, and shall make such reports and perform such other
duties as are incident to such office, or as are properly required by the
President or by the Board of Directors.
The Assistant Secretary or the Assistant Secretaries, in the order of
their seniority, shall, in the absence or disability of the Secretary, or in the
event of such officer's refusal to act, perform
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the duties and exercise the powers and discharge such duties as may be assigned
from time to time by the President or by the Board of Directors.
Section 9. Chief Financial Officer. The Chief Financial Officer may also
be designated by the alternate title of "Treasurer." The Chief Financial Officer
shall have custody of all moneys and securities of the Corporation and shall
keep regular books of account. Such officer shall disburse the funds of the
Corporation in payment of the just demands against the Corporation, or as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors from time to time as
may be required of such officer, an account of all transactions as Chief
Financial Officer and of the financial condition of the Corporation. Such
officer shall perform all duties incident to such office or which are properly
required by the President or by the Board of Directors.
The Assistant Chief Financial Officer or the Assistant Chief Financial
Officers, in the order of their seniority, shall, in the absence or disability
of the Chief Financial Officer, or in the event of such officer's refusal to
act, perform the duties and exercise the powers of the Chief Financial Officer,
and shall have such powers and discharge such duties as may be assigned from
time to time by the President or by the Board of Directors.
Section 10. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation.
Section 11. Officers Holding More than One Office. Any two or more
offices may be held by the same person.
ARTICLE V - MISCELLANEOUS
Section 1. Record Date and Closing of Stock Books. The Board of
Directors may fix a time in the future as a record date for the determination of
the shareholders entitled to notice of
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and to vote at any meeting of shareholders or entitled to receive payment of any
dividend or distribution, or any allotment of rights, or to exercise rights in
respect to any other lawful action. The record date so fixed shall not be more
than sixty (60) nor less than ten (10) days prior to the date of the meeting or
event for the purposes of which it is fixed. When a record date is so fixed,
only shareholders of record at the close of business on that date are entitled
to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date.
The Board of Directors may close the books of the Corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
Section 2. Certificates. Certificates of stock shall be issued in
numerical order and each shareholder shall be entitled to a certificate signed
in the name of the Corporation by the Chairman of the Board or the President or
a Vice President, and the Chief Financial Officer, the Secretary or an Assistant
Secretary, certifying to the number of shares owned by such shareholder. Any or
all of the signatures on the certificate may be facsimile. Prior to the due
presentment for registration of transfer in the stock transfer book of the
Corporation, the registered owner shall be treated as the person exclusively
entitled to vote, to receive notifications and otherwise to exercise all the
rights and powers of an owner, except as expressly provided otherwise by the
laws of the State of California.
Section 3. Representation of Shares in Other Corporations. Shares of
other corporations standing in the name of this Corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
Corporation by the Chairman of the Board, the President or any
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<PAGE> 15
Vice President and the Chief Financial Officer or the Secretary or an Assistant
Secretary.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end on
the 31st day of December.
Section 5. Annual Reports. The Annual Report to shareholders, described
in the California Corporations Code, is expressly waived and dispensed with.
Section 6. Amendments. Bylaws may be adopted, amended, or repealed by
the vote or the written consent of shareholders entitled to exercise a majority
of the voting power of the Corporation. Subject to the right of shareholders to
adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended, or repealed by
the Board of Directors, except that a Bylaw amendment thereof changing the
authorized number of directors may be adopted by the Board of Directors only if
these Bylaws permit an indefinite number of directors and the Bylaw or amendment
thereof adopted by the Board of Directors changes the authorized number of
directors within the limits specified in these Bylaws.
Section 7. Indemnification of Corporate Agents. The Corporation shall
indemnify each of its agents against expenses, judgments, fines, settlements and
other amounts, actually and reasonably incurred by such person by reason of such
person's having been made or having threatened to be made a party to a
proceeding to the fullest extent permissible by the provisions of Section 317
California Corporations Code. The indemnification provided by this section shall
not be deemed exclusive of any rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent such
additional rights to indemnification are authorized in the Articles of
Incorporation of the Corporation. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors
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<PAGE> 16
and administrators of the person.
Expenses incurred by a director of the Corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or was a
director of the Corporation (or was serving at the Corporation's request as a
director or officer of another corporation) shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized by relevant sections of the California Corporations
Code.
ARTICLE VI - RIGHT OF FIRST REFUSAL
No shareholder shall sell, assign, pledge, or in any manner transfer any
of the shares of stock of the corporation or any right or interest therein,
whether voluntarily or by operation of law, or by gift or otherwise, except by a
transfer which meets the requirements hereinafter set forth in this bylaw:
(a) If the shareholder desires to sell or otherwise transfer any of his
shares of stock, then the shareholder shall first give written notice thereof to
the corporation. The notice shall name the proposed transferee and state the
number of shares to be transferred, the proposed consideration, and all other
terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Article VI, the price
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<PAGE> 17
shall be deemed to be the fair market value of the stock at such time as
determined in good faith by the Board of Directors. In the event the corporation
elects to purchase all of the shares or, with consent of the shareholder, a
lesser portion of the shares, it shall give written notice to the transferring
shareholder of its election and settlement for said shares shall be made as
provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to acquire
any of the shares of the transferring shareholder as specified in said
transferring shareholder's notice, the Secretary of the corporation shall so
notify the transferring shareholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring shareholder's notice; provided that if the terms of payment set
forth in said transferring shareholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring shareholder's
notice.
(e) In the event the corporation and/or its assignee(s) do not elect to
acquire all of the shares specified in the transferring shareholder's notice,
said transferring shareholder may, within the sixty-day period following the
expiration of the option rights granted to the corporation and/or its
assignee(s) herein, transfer the shares specified in said transferring
shareholder's notice which were not acquired by the corporation and/or its
assignee(s) as specified in said transferring shareholder's notice. All shares
so sold by said transferring shareholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A shareholder's transfer of any or all shares held either during
such
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<PAGE> 18
shareholder's lifetime or on death by will or intestacy to such shareholder's
immediate family or to any custodian or trustee for the account of such
shareholder or such shareholder's immediate family. "Immediate family" as used
herein shall mean spouse, lineal descendant, father, mother, brother or sister
of the shareholder making such transfer.
(2) A shareholder's bona fide pledge or mortgage of any shares with
a commercial lending institution, provided that any subsequent transfer of said
shares by said institution shall be conducted in the manner set forth in this
bylaw.
(3) a shareholder's transfer of any or all of such shareholder's
shares to the corporation or to any other shareholder of the corporation.
(4) A shareholder's transfer of any or all of such shareholder's
shares to a person who, at the time of such transfer, is an officer or director
of the corporation.
(5) A corporate shareholder's transfer of any or all of its shares
pursuant to and in accordance with the terms of any merger, consolidation,
reclassification of shares or capital reorganization of the corporate
shareholder, or pursuant to a sale of all or substantially all of the stock or
assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or all of its shares
to any or all of its shareholders.
(7) A transfer by a shareholder which is a limited or general
partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, or upon duly authorized action of its Board
of Directors, or by the shareholders,
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<PAGE> 19
upon the express written consent of the owners of a majority of the voting power
of the corporation (excluding the votes represented by those shares to be
transferred by the transferring shareholder). This bylaw may be amended or
repealed either by a duly authorized action of the Board of Directors or by the
shareholders, upon the express written consent of the owners of a majority of
the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of securities
of the corporation shall be null and void unless the terms, conditions and
provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either of
the following dates, whichever shall first occur.
(1) On 10 years; or
(2) Upon the date securities of the corporation are first offered to
the public pursuant to a registration statement filed with, and declared
effective by, the United States Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the corporation
shall bear on their face the following legend so long as the foregoing right of
first refusal remains in effect:
"The shares represented by this certificate are subject to a right of
first refusal option in favor of the corporation and/or its assignee(s), as
provided in the bylaws of the corporation".
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 20
I, Craig S. Andrews, Secretary of IRORI, a California corporation, do
hereby certify that the foregoing Bylaws of IRORI, are the duly adopted Bylaws
of said Corporation as they are in effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 25th day of
April, 1995.
/s/ Craig Andrews
-----------------------------------
Craig S. Andrews, Secretary
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<PAGE> 21
AMENDMENT TO BYLAWS
OF
IRORI, a California corporation
Certificate of Secretary
The undersigned does hereby certify that:
I am the duly qualified and acting Secretary of IRORI, a duly organized
and existing California corporation (the "Corporation").
The following is a true copy of a resolution duly adopted by unanimous
written consent of the directors of the Corporation effective October 9, 1995
and approved by the shareholders of the Corporation effective October 9, 1995,
which appears in the minute book of the Corporation:
RESOLVED, that Article III, Section 2, Paragraph One of the Bylaws of
the Corporation be amended to read in its entirety as set forth below,
such amendment to be effective upon the issuance and sale of shares of
Series A Preferred Stock.
"Section 2. Number, Tenure and Qualifications. The authorized
number of directors of this Corporation shall not be less than
three (3) nor more than five (5), the exact number of directors
to be fixed from time to time within such limit by a duly
adopted resolution of the Board of Directors or shareholders.
The exact number of directors presently authorized shall be five
(5) until changed within the limits specified above by a duly
adopted resolution of the Board of Directors or shareholders."
The foregoing amendment to the Bylaws is in conformity with the Amended
and Restated Articles of Incorporation and Bylaws of the Corporation, has never
been modified or repealed, and will be in full force and effect upon the
issuance and sale of shares of Series A Preferred Stock.
IN WITNESS WHEREOF, I have executed this Amendment to Bylaws and affixed
the seal of the Corporation on the 9th day of October, 1995.
/s/ Craig Andrews
-------------------------------------
Craig S. Andrews, Secretary
<PAGE> 22
AMENDMENT TO BYLAWS
OF
IRORI, a California corporation
Certificate of Secretary
The undersigned does hereby certify that:
I am the duly qualified and acting Secretary of IRORI, a duly organized
and existing California corporation (the "Corporation").
The following is a true copy of a resolution duly adopted by unanimous
written consent of the directors of the Corporation effective October 29, 1996
and approved by the shareholders of the Corporation effective October 29, 1996,
which appears in the minute book of the Corporation:
RESOLVED, that Article III, Section 2, Paragraph One of the Bylaws of
the Corporation be amended to read in its entirety as set forth below,
such amendment to be effective upon the issuance and sale of shares of
Series B Preferred Stock.
Section 2. Number, Tenure and Qualifications. The authorized
number of directors of this Corporation shall not be less than
five (5) nor more than seven (7), the exact number of directors
to be fixed from time to time within such limit by a duly
adopted resolution of the Board of Directors or shareholders.
The exact number of directors presently authorized shall be
seven (7) until changed within the limits specified above by a
duly adopted resolution of the Board of Directors or
shareholders.
The foregoing amendment to the Bylaws is in conformity with the Amended
and Restated Articles of Incorporation and Bylaws of the Corporation, has never
been modified or repealed, and will be in full force and effect upon the
issuance and sale of shares of Series B Preferred Stock.
IN WITNESS WHEREOF, I have executed this Amendment to Bylaws on the 29th
day of October, 1996.
/s/ Craig Andrews
-------------------------------------
Craig S. Andrews, Secretary
<PAGE> 23
CERTIFICATE OF AMENDMENT TO BYLAWS OF
DISCOVERY PARTNERS INTERNATIONAL, INC.
The undersigned does hereby certify that:
The undersigned is the duly elected and acting Secretary of Discovery
Partners International, Inc., a duly organized and existing California
corporation (the "Corporation").
The following amendment was duly adopted by written consent of the Board of
Directors of the Corporation effective as of May 8, 2000, which consent appears
in the minute book of the Corporation:
The following provision shall be incorporated into the Bylaws of the
Corporation as Article VI, Section(f)(8):
"Axys Pharmaceuticals, Inc.'s bona fide pledge of any shares with
a commercial lending institution and Axys Pharmaceuticals, Inc.'s
sale, assignment or transfer of any or all of its shares, to the
extent that such sale, assignment or transfer is part of the
enforcement against such shares of a security interest which Axys
Pharmaceuticals, Inc. had, via a bona fide pledge, granted to such
commercial lending institution, such sale, assignment or transfer need
not be conducted in the manner set forth in this bylaw."
The foregoing amendment of the Bylaws is in conformity with the Articles of
Incorporation and the Bylaws of the Corporation, has never been modified or
repealed and is now in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment to Bylaws and affixed the seal of the Corporation on the 8th day of
May, 2000.
/s/ Jack Fitzpatrick
------------------------------------
Jack Fitzpatrick, Secretary
<PAGE> 1
Exhibit 10.1
DISCOVERY PARTNERS INTERNATIONAL, INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
---------------------
April 7, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Stock......................................................... 1
1.1 Sale and Issuance of Series E Preferred Stock............................... 1
1.2 Closing..................................................................... 1
1.3 Additional Closing(s)....................................................... 1
2. Representations and Warranties of the Company...................................... 2
2.1 Organization; Good Standing; Qualification.................................. 2
2.2 Authorization............................................................... 3
2.3 Valid Issuance of Preferred and Common Stock................................ 3
2.4 Governmental Consents....................................................... 3
2.5 Capitalization and Voting Rights............................................ 3
2.6 Subsidiaries................................................................ 4
2.7 Contracts and Other Commitments............................................. 4
2.8 Related-Party Transactions.................................................. 5
2.9 Registration Rights......................................................... 5
2.10 Permits..................................................................... 5
2.11 Compliance with Other Instruments........................................... 5
2.12 Litigation.................................................................. 5
2.13 Returns and Complaints...................................................... 6
2.14 Disclosure.................................................................. 6
2.15 Offering.................................................................... 6
2.16 Title to Property and Assets; Leases........................................ 6
2.17 Financial Statements........................................................ 6
2.18 Changes..................................................................... 7
2.19 Patents and Trademarks...................................................... 8
2.20 Manufacturing and Marketing Rights.......................................... 9
2.21 Employees; Employee Compensation; ERISA..................................... 9
2.22 Proprietary Information and Inventions Agreements........................... 9
2.23 Tax Returns, Payments, and Elections........................................ 10
2.24 Environmental and Safety Laws............................................... 10
2.25 Minute Books................................................................ 10
2.26 Real Property............................................................... 10
2.27 Compliance With Law......................................................... 10
2.28 Brokers..................................................................... 11
2.29 Insurance................................................................... 11
3. Representations and Warranties of the Investors.................................... 11
3.1 Authorization............................................................... 11
3.2 Purchase Entirely for Own Account........................................... 11
3.3 Reliance Upon Investor's Representations.................................... 11
3.4 Receipt of Information...................................................... 12
3.5 Investment Experience....................................................... 12
3.6 Accredited Investor......................................................... 12
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.7 Restricted Securities....................................................... 12
3.8 Further Limitations on Disposition.......................................... 12
3.9 Legends..................................................................... 13
4. California Corporate Securities Law................................................ 13
5. Conditions of Investor's Obligations at the Closing................................ 13
6. Conditions of the Company's Obligations at the Closing............................. 14
7. Covenants of the Company........................................................... 15
7.1 Approval of Certain Transactions............................................ 15
7.2 No Watering of Series E Preferred Stock..................................... 15
8. Miscellaneous...................................................................... 15
8.1 Entire Agreement............................................................ 15
8.2 Survival of Warranties...................................................... 15
8.3 Successors and Assigns...................................................... 16
8.4 Governing Law............................................................... 16
8.5 Counterparts................................................................ 16
8.6 Titles and Subtitles........................................................ 16
8.7 Notices..................................................................... 16
8.8 Finder's Fees............................................................... 16
8.9 Expenses.................................................................... 16
8.10 Attorneys' Fees............................................................. 16
8.11 Amendments and Waivers...................................................... 17
8.12 Severability................................................................ 17
8.13 Entire Agreement............................................................ 17
</TABLE>
EXHIBIT A Restated Articles of Incorporation
EXHIBIT B Amended and Restated Investors' Rights Agreement
EXHIBIT C Amended and Restated Shareholders' Agreement
EXHIBIT D Schedule of Common Holders
EXHIBIT E Form of Legal Opinion
EXHIBIT F Amendment No. 2 to Voting Agreement
SCHEDULE OF EXCEPTIONS
ii
<PAGE> 4
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES E PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the 7th day of April, 2000, by and between Discovery Partners
International, Inc., a California corporation (the "Company"), and the investors
listed on Schedule A hereto (each an "Investor" and collectively, the
"Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series E Preferred Stock.
(a) The Company shall authorize the issuance and sale to
Investors of an aggregate of up to 1,465,261 shares of the Company's Series E
Preferred Stock, having the rights, restrictions, privileges and preferences set
forth in the Restated Articles of Incorporation in the form attached hereto as
Exhibit A (the "Restated Articles") on or before the Closing (as defined below).
The Company shall adopt and file with the Secretary of State of California on or
before the Closing the Restated Articles.
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the Closing, and
the Company agrees to sell and issue to each Investor at the Closing, that
number of shares of the Company's Series E Preferred Stock set forth opposite
each Investor's name on Schedule A hereto for the purchase price set forth
thereon. The sale of the Series E Preferred Stock to each Investor shall
constitute a separate sale hereunder and the Company's agreement with each of
the Investors shall be a separate agreement.
1.2 Closing. The closing of the separate purchases and sales of
the Series E Preferred Stock shall take place at the offices of Brobeck, Phleger
& Harrison LLP, San Diego, California, at 10:00 a.m., on April 7, 2000 or at
such other time and place as the Company and Investors acquiring in the
aggregate more than half the shares of Series E Preferred Stock sold pursuant
hereto mutually agree upon orally or in writing (which time and place are
designated as the "Closing"). At the Closing, the Company shall deliver to each
Investor a certificate representing the Series E Preferred Stock that such
Investor is purchasing against payment of the purchase price therefor by check,
wire transfer to the account designated by the Company, short-term promissory
note in form and substance acceptable to the Company, cancellation of
indebtedness or any combination thereof. In the event that payment by an
Investor is made, in whole or in part, by cancellation of indebtedness, then
such Investor shall surrender to the Company for cancellation at the Closing any
evidence of such indebtedness or shall execute an instrument of cancellation in
form and substance acceptable to the Company.
1.3 Additional Closing(s).
(a) Conditions of Additional Closing(s). At a per share
purchase price of $8.00 per share and at any time from time to time on or before
April 14, 2000, the Company may, at one or more additional closings (each an
"Additional Closing"), without obtaining the
<PAGE> 5
signature, consent or permission of any of the Investors, offer and sell to
additional investors (each a "New Investor") up to that number of shares of the
Series E Preferred Stock of the Company (in no event to exceed 72,758 shares)
which is mutually agreed upon by the Company and the New Investor. A New
Investor may include persons or entities who are already Investors under this
Agreement.
(b) Amendments. The Company and the New Investors
purchasing Series E Preferred Stock at each Additional Closing will execute
counterpart signature pages to this Agreement, the Investors' Rights Agreement
(as defined below), the Shareholders' Agreement (as defined below) and the
Voting Agreement (as defined below) and such New Investors will, upon delivery
to the Company of such signature pages, become parties to, and bound by, this
Agreement, the Investors' Rights Agreement, the Shareholders' Agreement, and the
Voting Agreement each to the same extent as if they had been Investors at the
Closing. Immediately after each Additional Closing, Schedule A to this Agreement
will be amended to list the New Investors purchasing shares of Series E
Preferred Stock hereunder and the number of shares of Series E Preferred Stock
purchased by each New Investor under this Agreement at each such Additional
Closing. Any and all schedules or exhibits to the Investors' Rights Agreement,
the Shareholders' Agreement or the Voting Agreement that refer to the Investors
shall also be amended to reflect the New Investors. The Company will promptly
furnish to each Investor copies of the amendments to Schedule A and any other
schedule or exhibit referred to in this paragraph.
(c) Status of New Investors. Upon the completion of each
Additional Closing as provided in this Section 1.3, each New Investor will be
deemed to be an "Investor" for all purposes of this Agreement, the Investors'
Rights Agreement, the Shareholders' Agreement and the Voting Agreement.
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 attached hereto, specifically identifying the relevant
subparagraph hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this
Agreement, the Amended and Restated Investors' Rights Agreement in substantially
the form attached hereto as Exhibit B (the "Investors' Rights Agreement"), the
Amended and Restated Shareholders' Agreement in substantially the form attached
hereto as Exhibit C (the "Shareholders' Agreement"), Amendment No. 2 to the
Voting Agreement in substantially the form attached hereto as Exhibit F (the
"Voting agreement"), and any other agreement to which the Company is a party the
execution and delivery of which is contemplated hereby (collectively, the
"Ancillary Agreements"), to issue and sell the Series E Preferred Stock and the
Common Stock issuable upon conversion thereof, and to carry out the provisions
of this Agreement and the Ancillary Agreements. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on its business,
prospects, properties or financial condition.
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<PAGE> 6
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors, and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Restated Articles,
and any Ancillary Agreement, the performance of all obligations of the Company
hereunder and thereunder at the Closing, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Series E Preferred Stock
being sold hereunder and the Common Stock issuable upon conversion thereof has
been taken or will be taken prior to the Closing, and this Agreement and all
Ancillary Agreements constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities law.
2.3 Valid Issuance of Preferred and Common Stock. The Series E
Preferred Stock which is being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investors' Rights Agreement,
the Shareholders' Agreement, the Voting Agreement, and under applicable state
and federal securities laws. The Common Stock issuable upon conversion of the
Series E Preferred Stock purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Restated Articles, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investors' Rights Agreement,
the Shareholders' Agreement, the Voting Agreement, and under applicable state
and federal securities laws.
2.4 Governmental Consents. No consent, approval, qualification,
order or authorization of, or filing with, any local, state, or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement, the
Ancillary Agreements, the offer, sale or issuance of the Series E Preferred
Stock by the Company or the issuance of Common Stock upon conversion of the
Series E Preferred Stock.
2.5 Capitalization and Voting Rights. The authorized capital of
the Company consists, or will consist prior to the Closing, of:
(a) Preferred Stock. 9,033,333 shares of Preferred Stock
(the "Preferred Stock"), of which (a) 2,500,000 shares have been designated
Series A Preferred Stock, 2,000,000 of which are issued and outstanding, (b)
2,000,000 shares of which have been designated Series B Preferred Stock, all of
which are issued and outstanding, (c) 333,333 of which have been designated
Series C Preferred Stock, all of which are issued and outstanding, (d) 2,500,000
of which have been designated Series D Preferred Stock, 2,228,945 of which are
issued and outstanding, and (e) 1,700,000 of which have been designated Series E
Preferred stock, none of which are issued and outstanding, up to 1,465,261 of
which may be sold pursuant to this Agreement. The 6,562,278 outstanding shares
of Series A, B, C and D Preferred Stock are currently convertible into an
aggregate of no more than 6,624,206 shares of Common Stock.
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<PAGE> 7
The rights, privileges and preferences of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are as stated in the Restated Articles.
(b) Common Stock. 12,000,000 shares of common stock (the
"Common Stock"), of which 1,789,068 shares are issued and outstanding and are
owned by the persons and in the numbers specified in Exhibit D hereto. All such
issued and outstanding shares have been duly authorized and validly issued, and
are fully paid and non-assessable.
(c) The outstanding shares of Common Stock and Preferred
Stock have been issued in accordance with the registration or qualification
provisions of the Securities Act of 1933 and any applicable state securities
laws or pursuant to a valid exemption therefrom.
(d) Except for (A) the conversion privileges of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock, (B) the conversion privileges of the Series E Preferred Stock
to be issued pursuant to this Agreement, (C) warrants issued on September 10,
1996 to purchase 192,355 shares of Series A Preferred Stock, (D) warrants issued
as of November 5, 1996 to purchase 32,624 shares of Common Stock, (E) warrants
to purchase 33,051 shares of Series A Preferred Stock, (F) a warrant to purchase
150,000 shares of Common Stock, (G) warrants to purchase 48,904 shares of Common
Stock, (H) warrants to purchase 11,588 shares of Common Stock; (I) warrants to
purchase 234,739 shares of Series E Preferred Stock, (J) options to purchase
1,080,029 shares of Common Stock granted under the Company's 1995 Stock
Option/Stock Issuance Plan, and (K) the right of first offer provided in
paragraph 2.4 of the Investors' Rights Agreement, there are not outstanding any
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. Other than the Voting Agreement, the Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of the Company.
2.6 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.7 Contracts and Other Commitments. The Company does not have
any contract, agreement, lease, commitment or proposed transaction, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that were entered into in the ordinary course of business
and that do not involve more than $50,000, and do not extend for more than one
(1) year beyond the date hereof, (ii) sales contracts entered into in the
ordinary course of business, and (iii) contracts terminable at will by the
Company on no more than thirty (30) days notice without cost or liability to the
Company and that do not involve any employment or consulting arrangement and are
not material to the conduct of the Company's business. For the purpose of this
paragraph, employment and consulting contracts and contracts with labor unions,
and license agreements and any other agreements relating to the acquisition or
disposition of the Company's technology, shall not be considered to be contracts
entered into in the ordinary course of business.
4
<PAGE> 8
2.8 Related-Party Transactions. No employee, officer, or director
of the Company or member of his or her immediate family thereof is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers or directors of the Company and members of their
immediate families may own stock in publicly-traded companies that may compete
with the Company. To the Company's knowledge, no officer or director or any
member of their immediate families or any corporation or business entity
controlled by him or her is, directly or indirectly, interested in any material
contract with the Company.
2.9 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company is not obligated to register under the Securities
Act any of its presently outstanding securities or any of its securities that
may subsequently be issued.
2.10 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company, taken as
a whole, and believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.
The Company is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority.
2.11 Compliance with Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws or in any material respect of any material provision of any
mortgage, indenture, agreement, instrument or contract to which it is a party or
by which it is bound or, to its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule or regulation applicable to the Company. The
execution, delivery and performance by the Company of this Agreement and the
Ancillary Agreements, and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in material
conflict with or constitute, with or without the passage of time or giving of
notice, either a material default under any such provision or an event that
results in the creation of any material lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations, or any of its assets or
properties.
2.12 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that questions
the validity of this Agreement or the Ancillary Agreements or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse change in the assets, business
properties, prospects or financial condition of the Company, taken as a whole,
or in any material change in the current equity ownership of the Company. The
foregoing includes, without limitation, any action, suit, proceeding, or
investigation pending or currently threatened involving the prior employment of
any of the Company's employees, their use in connection with the Company's
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<PAGE> 9
business of any information or techniques allegedly proprietary to any of their
former employers, their obligations under any agreements with prior employers,
or negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party to, or to the best
of its knowledge, named in any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit or
proceeding by the Company currently pending or that the Company currently
intends to initiate.
2.13 Returns and Complaints. The Company has received no customer
complaints concerning alleged defects in the design of its products that, if
true, would materially adversely affect the operations or financial condition of
the Company.
2.14 Disclosure. The Company has provided each Investor with all
the information that such Investor has requested for deciding whether to
purchase the Series E Preferred Stock and all information which the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither this Agreement nor any other written 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.
2.15 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Series E Preferred Stock as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act. Neither the
Company nor any person authorized or employed by the Company as agent, broker or
otherwise in connection with the offering or sale of the Series E Preferred
Stock or any security of the Company similar to the Series E Preferred Stock has
offered the Series E Preferred Stock or any such similar security for sale to,
or solicited any offer to buy the Series E Preferred Stock or any such similar
security from, or otherwise approached or negotiated with respect thereto with,
any person or persons, and neither the Company nor any person acting on its
behalf has taken or will take any other action (including, without limitation,
any offer, issuance or sale of any security of the Company under circumstances
which might require the integration of such security with Series E Preferred
Stock under the Securities Act or the rules and regulations of the Securities
and Exchange Commission thereunder), in either case so as to subject the
offering, issuance or sale of the Series E Preferred Stock to the registration
provisions of the Securities Act.
2.16 Title to Property and Assets; Leases. The Company owns its
property and assets free and clear of all mortgages, liens, claims and
encumbrances, except (i) such encumbrances and liens which arise in the ordinary
course of business for obligations not past due to carriers, warehousemen,
laborers, materials men and the like, (ii) for liens for current taxes not yet
delinquent, (iii) for liens in respect of pledges or deposits under workers'
compensation laws or similar legislation, or (iv) for minor defects in title,
none of which, individually or in the aggregate materially interferes with the
use of such property. With respect to the property and assets it leases, the
Company is in substantial compliance with such leases and, to its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.17 Financial Statements. The Company has delivered to each
Investor its audited financial statements (balance sheet and profit and loss
statement, statement of
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<PAGE> 10
shareholders' equity and statement of changes in financial position, at December
31, 1999 and for the fiscal year then ended), certified by the Chief Financial
Officer of the Company (the "Financial Statements"). The Financial Statements
have been prepared in accordance with generally accepted accounting principles
("GAAP"). The Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1999 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under GAAP to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP.
2.18 Changes. Since December 31, 1999, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes that have not been, in the aggregate,
materially adverse;
(b) any change (individually or in the aggregate), except
in the ordinary course of business, in the contingent obligations of the Company
by way of guarantee, endorsement, indemnity, warranty or otherwise;
(c) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, prospects or financial condition of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(d) any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(e) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the business, properties,
prospects or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(f) any material change to a material contract or
arrangement by which the Company or any of its assets is bound or subject;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director, or shareholder;
(h) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
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<PAGE> 11
(i) any resignation or termination of employment of any
key officer of the Company; and the Company does not know of the impending
resignation or termination of employment of any such officer;
(j) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(k) any labor dispute involving the Company or any of its
employees;
(l) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(m) any extraordinary increase in the compensation of any
of the Company's employees, officers or directors;
(n) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
(o) any other event or condition of any character which
might materially and adversely affect the business, properties, prospects or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted); or
(p) any agreement or commitment by the Company to do any
of the things described in this paragraph 2.18.
2.19 Patents and Trademarks. The Company owns or possesses
sufficient legal rights to all patents, trademarks, servicemarks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted and to the best of its knowledge does not conflict with or infringe
any of the rights of others with respect to any of the foregoing. The Schedule
of Exceptions contains a complete list of patents and pending patent
applications of the Company. There are no outstanding options, licenses, or
agreements of any kind relating to the foregoing, nor is the Company 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. The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights, trade
secrets or other proprietary rights of any other person or entity. The Company
is not aware that any of it 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 employee's best efforts to promote the
interests of the Company or that would conflict with the Company's business as
proposed to be conducted. Neither the execution nor delivery of this Agreement
or any Ancillary Agreement nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will
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<PAGE> 12
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument known to the
Company under which any of such employees is now obligated. The Company does not
believe it is or will be necessary to use any inventions of any of its employees
(or persons it currently intends to hire) made prior to their employment by the
Company.
2.20 Manufacturing and Marketing Rights. The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market,
or sell its products.
2.21 Employees; Employee Compensation; ERISA.
(a) There is no strike, or labor dispute or union
organization activities pending or threatened between it and its employees. None
of the Company's employees belong to any union or collective bargaining unit.
The Company has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws related to employment. To
the Company's knowledge, no employee of the Company is or will be in violation
of any judgment, decree or order, or any term of any employment contract, patent
disclosure agreement or other contract or agreement relating to the relationship
of any such employee with the Company or any other party because of the nature
of the business conducted or to be conducted by the Company or to the
utilization by the employee of his best efforts with respect to such business.
The Company is not party to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement
(each an "Employee Plan") which is subject to ERISA. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of the Company is terminable at the will of the
Company.
(b) Each Employee Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Employee
Plan.
(c) With respect to the employees and former employees of
the Company, there are no employee post-retirement medical or health plans in
effect, except as required by Section 4980B of the Code.
(d) No employee of the Company will become entitled to any
bonus, retirement, severance or similar benefit or enhanced benefit solely as a
result of the transactions contemplated hereby.
2.22 Proprietary Information and Inventions Agreements. Each
employee and officer of the Company, and each consultant of the Company having
access to the Company's proprietary information, has executed a Proprietary
Information and Inventions Agreement
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<PAGE> 13
substantially in the form or forms that have been delivered to counsel for the
Investors. The Company is not aware that any of its employees, officers or
consultants is in violation thereof.
2.23 Tax Returns, Payments, and Elections. The Company 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 has paid all taxes and
other assessments due, except those contested by it in good faith. The provision
for taxes of the Company as shown in the Financial Statements is adequate for
taxes due or accrued as of the date thereof. The Company has not elected
pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to be
treated as an S corporation or a collapsible corporation pursuant to Section
341(f) of Section 1362(a) of the Code, nor has it made any other elections
pursuant to the Code (other than elections which relate solely to methods of
accounting, depreciation or amortization) which would have a material effect on
the business, properties, prospects or financial condition of the Company. The
Company has never had any tax deficiency proposed or assessed against it and has
not executed any waiver of any statute of limitations on the assessment or
collection of any tax or government charge. None of the Company's federal income
tax returns and none of its state income or franchise tax or sales or use tax
returns has ever been audited by governmental authorities. Since the date of the
Financial Statements, the Company has made adequate provisions on its books of
account for all taxes, assessments, and governmental charges with respect to its
business, properties and operations for such period. The Company has withheld or
collected from each payment made to each of its employees, the amount of all
taxes, including but not limited to federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
2.24 Environmental and Safety Laws. To its knowledge, the Company
is not in violation of any applicable statute, law, or regulation relating to
the environment or occupational health and safety, and to its knowledge, no
material expenditures are or will be required in order to comply with any such
existing statute, law, or regulation.
2.25 Minute Books. The minute books of the Company, complete and
accurate copies of which have been provided to counsel for the Investors,
contain minutes of all meetings of directors and shareholders and all actions by
written consent without a meeting by the directors and shareholders since the
time of incorporation and reflect all actions by the directors (and any
committee of directors) and shareholders with respect to all transactions
referred to in such minutes accurately in all material respects.
2.26 Real Property. The Company owns no real property. The
Company is not a real property holding corporation within the meaning of
Internal Revenue Code Section 897(c)(2) and any regulations promulgated
thereunder.
2.27 Compliance With Law. The Company is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Company of any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. The Company has (to its knowledge) complied with all laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services. The Company has all necessary permits, licenses
and other authorizations
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required to conduct its business as conducted and as proposed to be conducted,
and the Company has been operating its business pursuant to and in compliance
with the terms of all such permits, licenses and other authorizations except
where any instance or instances of noncompliance do not, individually or in the
aggregate, have a material adverse effect on the Company's business, prospects,
financial condition, operations, property or affairs. There is no existing law,
rule, regulation or order which would prohibit or restrict the Company from, or
otherwise materially adversely affect the Company in, conducting its business in
any jurisdiction in which it is now conducting business or in which it proposes
to conduct business, and the Company after due inquiry is not aware of any
proposed law, rule, regulation or order which would prohibit or restrict the
Company from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business and which has been
published in the Federal Register or in any California analog thereof.
2.28 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement or any Ancillary Agreement.
2.29 Insurance. The Company maintains on its properties and
business, with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated, which insurance is deemed by the
Company to be sufficient. The Company has not caused or permitted any assignment
or change in beneficiary since the date of the Financial Statements and has not
borrowed against any such policy.
3 .Representations and Warranties of the Investors. Each Investor hereby
represents and warrants and agrees that:
3.1 Authorization. Such Investor has full power and authority to
enter into this Agreement and the Ancillary Agreements, and each such Agreement
constitutes a valid and legally binding obligation of Investor.
3.2 Purchase Entirely for Own Account. The Series E Preferred
Stock and the Common Stock issuable upon conversion thereof (collectively, the
"Securities") will be acquired for investment for such 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 such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. Except for
the registration rights and restrictions on transfer set forth in the Investors'
Rights Agreement, such Investor 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
Securities.
3.3 Reliance Upon Investor's Representations. Such Investor
understands that the Securities are not, and any Common Stock acquired on
conversion thereof at the time of issuance may not be, registered under the
Securities Act, on the ground that the sale provided for in this Agreement and
the issuance of securities hereunder is exempt from registration under the
11
<PAGE> 15
Securities Act pursuant to section 4(2) thereof, and that the Company's reliance
on such exemption is predicated on such Investor's representations set forth
herein.
3.4 Receipt of Information. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Securities. Such Investor has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Securities and the business, properties,
prospects and financial condition of the Company and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors to
rely thereon.
3.5 Investment Experience. Such Investor is experienced in
evaluating and investing 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 Securities.
3.6 Accredited Investor. Such Investor is an "accredited
investor" within the meaning of SEC Rule 501 of Regulation D, as presently in
effect.
3.7 Restricted Securities. Such Investor understands that the
Securities 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, only in certain limited circumstances. In this connection,
such Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
3.8 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities (or the Common
Stock issuable upon the conversion thereof) unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by this Section 3
and Section 7, provided and to the extent such sections are then applicable, and
the Investors' Rights Agreement, the Shareholders' Agreement, the Voting
Agreement and any applicable Ancillary Agreement and:
(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) such 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, such 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
12
<PAGE> 16
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
3.9 Legends. To the extent applicable, each certificate or other
document evidencing any of the Securities shall be endorsed with the legend set
forth below, and such Investor covenants that, except to the extent such
restrictions are waived by the Company, such Investor shall not transfer the
shares represented by any such certificate without complying with the
restrictions on transfer described in the legend endorsed on such certificate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR ANY STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE ACT, OR PURSUANT
TO RULE 144 UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
Provided, that the Company shall remove such legend at such Investor's request
if and when such Investor is entitled to sell such securities without
restriction pursuant to Securities Act Rule 144(k).
4. California 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 FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION 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 Investor's Obligations at the Closing. The obligations
of each Investor under subsections 1.1(b) and 1.2 of this Agreement are subject
to the satisfaction on or before the Closing to each of the following
conditions:
(a) 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.
13
<PAGE> 17
(b) 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.
(c) Compliance Certificate. The President or the Chief
Financial Officer of the Company shall have delivered to each Investor at the
Closing a certificate certifying that the conditions specified in Subsections
5.1(a) and (b) have been fulfilled.
(d) California Qualification. The Commissioner of
Corporations of the State of California shall have issued a permit qualifying
the offer and sale of the Securities to the Investors pursuant to this
Agreement, or such offer and sale shall be exempt from such qualification under
the California Corporate Securities Law of 1968, as amended.
(e) 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 counsel to the Investors, who shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
(f) Opinion of Company Counsel. Each Investor shall have
received from Brobeck, Phleger & Harrison LLP, counsel for the Company, an
opinion, dated the date of the Closing, in the form attached hereto as Exhibit
E.
(g) Investors' Rights Agreement. The Company and each
Investor shall have entered into the Investors' Rights Agreement in the form
attached hereto as Exhibit B.
(h) Shareholders' Agreement. The Company and each Investor
shall have entered into the Shareholders' Agreement in the form attached hereto
as Exhibit C.
(i) Voting Agreement. The Company and each Investor shall
have entered into the Voting Agreement in the form attached hereto as Exhibit F.
6. Conditions of the Company's Obligations at the Closing. The
obligations of the Company to be performed under this Agreement at the Closing
are subject to the satisfaction on or before the Closing of each of the
following conditions:
(a) Representations and Warranties. The representations
and warranties of the Investor contained in Section 3 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.
(b) Performance. The Investor 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.
(c) California Qualification. The Commissioner of
Corporations of the State of California shall have issued a permit qualifying
the offer and sale to the Investors of
14
<PAGE> 18
the securities or such offer and sale shall be exempt from such qualification
under the California Corporate Securities Law of 1968, as amended.
(d) Investors' Rights Agreement. The Company and each
Investor shall have entered into the Investors' Rights Agreement in the form
attached hereto as Exhibit B.
(e) Shareholders' Agreement. The Company and each Investor
shall have entered into the Shareholders' Agreement in the form attached hereto
as Exhibit C.
(f) Voting Agreement. The Company and each Investor shall
have entered into the Voting Agreement in the form attached hereto as Exhibit F.
7. Covenants of the Company. The Company covenants and agrees that for
so long as an Investor holds at least 100,000 shares of Series E Preferred Stock
initially issued to such Investor pursuant to this Agreement, it will comply
with the following:
7.1 Approval of Certain Transactions. The Company shall not,
without the approval of its Board of Directors:
(a) incur indebtedness above the amount of $500,000 not
previously approved in the Company's budget;
(b) make capital expenditures in an amount exceeding
$500,000 not previously approved in the Company's budget;
(c) sell, lease, transfer, encumber or otherwise dispose
of assets with a fair market value in excess of $500,000 not previously approved
in the Company's budget;
(d) enter into any transaction with officers, directors or
affiliates of the Company, except reimbursement of expenses incurred in the
ordinary course of business; or
(e) increase the compensation of any executive officer by
more than ten percent (10%) in any given year.
7.2 No Watering of Series E Preferred Stock. The Company shall
not issue and sell any shares of Series E Preferred Stock for less than $8.00
per share.
8. Miscellaneous.
8.1 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement between the parties and 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.
8.2 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors 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 the Investors or the Company.
15
<PAGE> 19
8.3 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any securities). 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.
8.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
8.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.6 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.
8.7 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 by hand or
express courier service or five days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address set forth on the signature page hereof, or
at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
8.8 Finder's Fees. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, 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 finders' 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.
8.9 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 the
Closing is effected, the Company shall, at the Closing, reimburse the reasonable
fees and expenses of a single counsel for Pacific Venture Group II, L.P., not to
exceed $20,000.
8.10 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Investors'
Rights Agreement, the Shareholders' Agreement, the Voting Agreement or the
Restated Articles, the prevailing party shall be entitled
16
<PAGE> 20
to reasonable attorney's fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
8.11 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 either retroactively or
prospectively), only with the written consent of the Company and the holders of
more than 66 2/3% of the Common Stock (that has not been sold to the public)
issued or issuable upon conversion of the Series E Preferred Stock sold pursuant
to this Agreement. 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 have been converted), each future holder of all such securities, and
the Company.
8.12 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 the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8.13 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement between the parties with respect to
the subject matter hereof and no party shall be liable or bound to the other
party in any manner by any warranties, representations, or covenants with
respect to such subject matter except as specifically set forth herein or
therein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DISCOVERY PARTNERS INTERNATIONAL, INC., a
California corporation
By: /s/ Riccardo Pigliucci
-------------------------------------------------
Riccardo Pigliucci, Chief Executive Officer
INVESTORS: ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III. L.P.,
Its General Partner
By: /s/ Andrew Senyei
-----------------------------------------
General Partner, Andrew E. Senyei
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By: /s/ Andrew Senyei
-----------------------------------------
General Partner, Andrew E. Senyei
MAYFIELD VIII,
a California Limited Partnership
By: Mayfield VIII Management, L.L.C.,
a Delaware Limited Liability
Company, its general partner
By: /s/ A. Grant Heidrich, III
-----------------------------------------
General Partner
MAYFIELD ASSOCIATES FUND II,
a California Limited Partnership
By: /s/ A. Grant Heidrich, III
-------------------------------------------------
General Partner
[SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE> 22
CROSSPOINT VENTURE PARTNERS LS-1997
By: /s/ Don Milder
-------------------------------------------------
Don Milder, General Partner
PACIFIC VENTURE GROUP II, L.P.
By: PVG EQUITY PARTNERS II, LLC,
its General Partner
By: /s/ Ralph C. Sabin, Managing Director
-------------------------------------------------
BAYSTAR CAPITAL, L.P.,
a Delaware limited partnership
By: BayStar Capital Management LLC,
its General Partner
By: /s/ Steve Lamar
------------------------------------------
Steve Lamar, Vice President
BAYSTAR INTERNATIONAL LTD,
a British Virgin Islands Corporation
By: BayStar International Management, LLC,
its General Partner
By: /s/ Steve Lamar
------------------------------------------
Steve Lamar, Vice President
/s/ Hayden Trubitt
-------------------------------------------------
Hayden J. Trubitt
[SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE> 23
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF TOTAL # OF
INVESTOR NAME AND ADDRESS NOTES + INTEREST CASH INVESTMENT SHARES
---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Enterprise Partners III, L.P.
7979 Ivanhoe Avenue, Suite 550 $ 1,901,112 $ 1,901,112 237,639
La Jolla, CA 92037
Attn: Andrew Senyei
Enterprise Partners III Associates, L.P. 151,040 151,040 18,880
7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
Attn: Andrew Senyei
Mayfield VIII
2800 Sand Hill Road 1,949,552 1,949,552 243,694
Menlo Park, CA 94025
Attn: A. Grant Heidrich, III
Mayfield Associates Fund II
2800 Sand Hill Road 102,608 102,608 12,826
Menlo Park, CA 94025
Attn: A. Grant Heidrich, III
Crosspoint Venture Partners LS-1997
18552 MacArthur Boulevard, Suit 300 2,012,712 2,012,712 251,589
Irvine, CA 92715
Pacific Venture Group II, L. P
15635 Alton Parkway, Suite 230 0 $ 3,000,000 3,000,000 375,000
Irvine, CA 92618
BayStar Capital, L.P.
425 Market Street, 22nd Floor 0 1,200,000 1,200,000 150,000
San Francisco, CA 94105
BayStar International Ltd.
425 Market Street, 22nd Floor
San Francisco, CA 94105 0 800,000 800,000 100,000
Hayden J. Trubitt
c/o Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130 23,000 23,000 2,875
----------- ----------- ----------- ---------
Total: $ 6,117,024 $ 5,023,000 $11,140,024 1,392,503
</TABLE>
Schedule A-1
<PAGE> 24
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
Exhibit A-1
<PAGE> 25
RESTATED ARTICLES OF INCORPORATION
OF DISCOVERY PARTNERS INTERNATIONAL, INC.,
a California Corporation
The undersigned Jack Fitzpatrick hereby certifies that:
ONE: He is the duly elected and acting Vice President and
Secretary of said corporation.
TWO: The Articles of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Discovery Partners International,
Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Twenty One Million Thirty-Three Thousand Three Hundred Thirty-Three
(21,033,333) shares. Twelve Million (12,000,000) shares shall be Common Stock
and Nine Million Thirty-Three Thousand Three Hundred Thirty-Three (9,033,333)
shares shall be Preferred Stock, of which Two Million Five Hundred Thousand
(2,500,000) shares shall be Series A Preferred Stock, Two Million (2,000,000)
shares shall be Series B Preferred Stock, Three Hundred Thirty-Three Thousand
Three Hundred Thirty-Three (333,333) shares shall be Series C Preferred Stock,
Two Million Five Hundred Thousand (2,500,000) shares shall be Series D Preferred
Stock, and One Million Seven Hundred Thousand (1,700,000) shares shall be Series
E Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
rights, preferences, restrictions and other matters relating to the Preferred
Stock are as follows:
1. Dividend Provisions.
(a) Subject to the rights of series of Preferred Stock
which may from time to time come into existence in accordance with Section 6
hereof, the holders of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E 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
<PAGE> 26
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of this corporation) on the Common Stock of
this corporation, at the rate of $0.14 per share of Series A Preferred Stock per
annum, $0.21 per share of Series B Preferred Stock per annum, $0.42 per share of
Series C Preferred Stock per annum, $0.504 per share of Series D Preferred Stock
per annum, and $0.56 per share of Series E Preferred Stock per annum (subject to
appropriate adjustments for stock splits, stock dividends, combinations or other
recapitalizations) ("Preferred Dividend Preference") payable when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative. No
cash dividends shall be declared or paid with respect to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock unless at the same time a like proportionate
cash dividend for the same dividend period, ratably in proportion to the
respective annual dividend rates set forth in above, is declared and paid with
respect to the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock.
(b) After paying the full Preferred Dividend Preference in
any calendar year, whenever this corporation declares a further dividend in such
calendar year, the holders of Common Stock and the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive dividends
ratably based upon the number of shares of Common Stock held by each (assuming
conversion of all of such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock).
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, either voluntary or involuntary, subject to the
rights of any additional series of Preferred Stock that may from time to time
come into existence in accordance with Section 6 hereof, the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E 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 by reason of their ownership thereof, an amount
per share equal to the sum of (A) $2.00 for each outstanding share of Series A
Preferred Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations and hereinafter referred to
as the "Original Series A Issue Price"), (B) $3.00 for each outstanding share of
Series B Preferred Stock (subject to appropriate adjustments for stock splits,
stock dividends, combinations or other recapitalizations and hereinafter
referred to as the "Original Series B Issue Price"), (C) $6.00 for each
outstanding share of Series C Preferred Stock (subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations and hereinafter referred to as the "Original Series C Issue
Price"), (D) $7.20 for each outstanding share of Series D Preferred Stock
(subject to appropriate adjustments for stock splits, stock dividends,
combinations or other recapitalizations and hereinafter referred to as the
"Original Series D Issue Price"), (E) $8.00 for each outstanding share of Series
E Preferred Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations and hereinafter referred to
as the "Original Series E Issue Price") and (F) an
2.
<PAGE> 27
amount equal to declared but unpaid dividends on such share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, as applicable. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then, subject to the rights of any
additional series of Preferred Stock which may from time to time come into
existence, the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock in proportion to the
aggregate liquidation preferences of the respective series, and ratably among
the holders of that series in proportion to the amount of such stock owned by
each such holder.
(b) After the distributions described in subsection (a)
above have been paid, and subject to the rights of any additional series of
Preferred Stock which may from time to time come into existence, the remaining
assets of the corporation available for distribution to shareholders shall be
distributed among the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming conversion of all such Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock).
(c) A consolidation or merger of this corporation with or
into any other corporation or corporations in which the shareholders of this
corporation immediately prior to such consolidation or merger own less than
fifty percent (50%) of the voting power of the successor corporation or
corporations immediately after such consolidation or merger, or a sale,
conveyance or disposition of all or substantially all of the assets of this
corporation or the effectuation by the corporation of a transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the corporation is disposed of, shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 2, unless, in each
such case, the value of the consideration to be received by the holders of
Series A Preferred Stock, the holders of Series B Preferred Stock, the holders
of Series C Preferred Stock, the holders of Series D Preferred Stock and the
holders of Series E Preferred Stock, without treating such transaction as a
liquidation, dissolution or winding up within the meaning of this Section 2,
exceeds $10.00 per share (subject to appropriate adjustments for stock splits,
stock dividends or combinations).
(d) Whenever a distribution provided for in subsections
(a) and (b) above or a transaction described in subsection (c) above shall be
payable in securities or property other than cash, the value of such
distribution or the consideration to be received in such transaction shall be
the fair market value of such securities or other property as determined in good
faith by the Board of Directors.
3. Redemption.
3.
<PAGE> 28
(a) Subject to the rights of series of Preferred Stock
which may from time to time come into existence in accordance with Section 6
hereof, at any time after July 17, 2002, on the date within sixty (60) days (the
"Redemption Date") after the receipt by this corporation of a written request
from the holders of not less than a majority of the then outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock treated as a single class that all
or some of such holders' shares be redeemed ("Redemption Notice"), and
concurrently with surrender by such holders of the certificates representing
such shares, this corporation shall, to the extent it may lawfully do so, redeem
the shares specified in such request by paying in cash therefor (i) a sum equal
to $2.00 per share of Series A Preferred Stock (as adjusted for any stock
dividends, combinations, splits or recapitalizations with respect to such
shares) plus all declared but unpaid dividends on such shares (the "Series A
Redemption Price"), (ii) a sum equal to $3.00 per share of Series B Preferred
Stock (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Series B Redemption Price"), (iii) a sum equal to
$6.00 per share of Series C Preferred Stock (as adjusted for any stock
dividends, combinations, splits or recapitalizations with respect to such
shares) plus all declared but unpaid dividends on such shares (the "Series C
Redemption Price"), (iv) a sum equal to $7.20 per share of Series D Preferred
Stock (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Series D Redemption Price") and (v) a sum equal
to $8.00 per share of Series E Preferred Stock (as adjusted for any stock
dividends, combinations, splits or recapitalizations with respect to such
shares) plus all declared but unpaid dividends on such shares (the "Series E
Redemption Price"). Any redemption effected pursuant to this subsection 3(a)
shall be made on a pro rata basis among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock in proportion to the number of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and/or Series E Preferred Stock then held by such
holders.
(b) As used herein and in subsection (3)(c) below, the
term "Redemption Date" shall refer to each "Redemption Date" and the term
"Redemption Price" shall refer to each "Series A Redemption Price," "Series B
Redemption Price," "Series C Redemption Price," "Series D Redemption Price" and
"Series E Redemption Price." Subject to the rights of series of Preferred Stock
which may from time to time come into existence in accordance with Section 6
hereof, at least fifteen (15) but no more than thirty (30) days prior to each
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 the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and/or Series E Preferred Stock to be redeemed, at the address last shown on the
records of this corporation for such holder, notifying such holder of the
redemption to be effected, specifying the number of shares to be redeemed from
such holder, the Redemption Date, the Redemption Price, the place at which
payment may be obtained and calling upon such holder to surrender to this
corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in subsection (3)(c), on or after the
Redemption Date, each holder of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock
4.
<PAGE> 29
and/or Series E 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
Redemption Price 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 cancelled. 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.
(c) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
designated for redemption in the Redemption Notice as holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock (except the right to receive the
Redemption Price 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. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, if the funds of
the corporation legally available for redemption of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed based upon their
holdings of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. The
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. Subject to the rights of series of Preferred Stock which may from time
to time come into existence, at any time thereafter when additional funds of the
corporation are legally available for the redemption of shares of Preferred
Stock, such funds will immediately be used to redeem the balance of the shares
which the corporation has become obliged to redeem on any Redemption Date but
which it has not redeemed.
4. Conversion. The holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Subject to subsection 4(c), each
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock plus all declared
but unpaid dividends on each share shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share and prior
to the close of business on any Redemption Date, if any, as may have been fixed
in any Redemption Notice with respect to such share, at the office of this
corporation or any transfer agent for the particular series of Preferred Stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series A Issue
5.
<PAGE> 30
Price, Original Series B Issue Price, Original Series C Issue Price, Original
Series D Issue Price or Original Series E Issue Price, as applicable, and all
declared but unpaid dividends on such share by the Conversion Price applicable
to such share, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion. The initial Conversion Price per
share for shares of Series A Preferred Stock shall be the Original Series A
Issue Price, the initial Conversion Price per share for shares of Series B
Preferred Stock shall be the Original Series B Issue Price, the initial
Conversion Price per share for shares of Series C Preferred Stock shall be the
Original Series C Issue Price, the initial Conversion Price per share for shares
of Series D Preferred Stock shall be the Original Series D Issue Price and the
initial Conversion Price per share for shares of Series E Preferred Stock shall
be the Original Series E Issue Price; provided, however, that the Conversion
Price for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be
subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. Each share of 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 shares
immediately upon the earlier of (i) except as provided below in subsection 4(c),
the corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended (a "Firm Public Offering"), the public
offering price of which is not less than $10.00 per share (adjusted to reflect
subsequent combinations, stock splits, stock dividends, or other
recapitalizations) and $15,000,000 in the aggregate or (ii) the receipt (either
in connection with the corporation's sale of its Common Stock in a Firm Public
Offering, the public offering price of which is not less than $7.20 per share
(adjusted to reflect subsequent combinations, stock splits, stock dividends, or
other recapitalizations), or else not in connection with any public offering) of
the approval or consent to such conversion by at least sixty-seven percent (67%)
of the then-outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock voting together as a class. In the case of approvals or consents to
conversion in connection with the corporation's sale of its Common Stock in a
Firm Public Offering, the public offering price of which is less than $7.20 per
share (adjusted to reflect subsequent combinations, stock splits, stock
dividends, or other recapitalizations), (iii) each share of Series A Preferred
Stock, Series B Preferred Stock, Series C 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 shares immediately upon the
receipt of the approval or consent to such conversion by at least sixty-seven
percent (67%) of the then-outstanding shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series E Preferred Stock voting
together as a class, and (iv) each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such shares immediately upon the receipt of the
approval or consent to such conversion by at least eighty percent (80%) of the
then-outstanding shares of Series D Preferred Stock voting together as a
separate series. (Provided, however, that all conversions in connection with a
Firm Public Offering shall be subject to the last sentence of subsection 4(c).
6.
<PAGE> 31
(c) Mechanics of Conversion. Before any holder of
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
particular series of Preferred Stock, and shall give written notice 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 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 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 offering of securities registered pursuant to the
Securities Act of 1933, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock upon conversion of the
Preferred Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock. The
Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the
date upon which any shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock were first issued (the "Purchase Date" with respect to such series), any
Additional Stock (as defined below) without consideration or for a consideration
per share less than the applicable Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the applicable
Conversion Price for such series of Preferred Stock in effect immediately prior
to each such issuance shall forthwith (except as otherwise provided in this
clause (i)) be adjusted to a price determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance (including, without
limitation, the number of shares of Common Stock issuable upon the conversion of
the Preferred Stock) plus the number of shares of Common Stock that the
aggregate consideration received by the corporation for such issuance would
purchase at the Conversion Price existing immediately prior to such issuance of
Additional Stock; and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance (including, without
limitation, the number of shares of Common Stock issuable upon the conversion of
the Preferred Stock) plus the number of shares of such Additional Stock.
7.
<PAGE> 32
(B) No adjustment of the Conversion Price for
any 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 (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward, whichever occurs first. Except to the limited
extent provided for in subsections (E)(3) and (E)(4), no adjustment of such
Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(C) In the case of the issuance of 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 (whether before,
on or after the applicable Purchase Date) 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, the following provisions shall
apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) 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(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the corporation for any such
securities and related options or rights (excluding any cash received on account
of
8.
<PAGE> 33
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the corporation (without taking into
account potential antidilution adjustments) 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(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or 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 antidilution provisions thereof, the
applicable Conversion Price of the Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, 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.
(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 applicable Conversion Price of the Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) 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.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this corporation after the applicable Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof,
(B) shares of Common Stock issued upon conversion of
Preferred Stock,
(C) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
corporation at any time when the total number of shares of Common Stock so
issuable or issued (and not repurchased at cost by the corporation in
9.
<PAGE> 34
connection with the termination of employment) does not exceed 2,450,000
(subject to appropriate adjustments for stock splits, stock dividends,
combinations or other recapitalizations),
(D) shares of Common Stock issued or issuable in
connection with licensing, joint venture, research/development, joint marketing,
collaboration or other such transactions, if in transactions with primarily
non-financing purposes,
(E) shares of Common Stock issued or issuable in
connection with a bona fide business acquisition by this corporation, whether by
merger, consolidation, acquisition of assets, purchase or exchange of stock or
otherwise, or
(F) shares of Common Stock issued or issuable (I) in
a public offering before or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock or (II) upon exercise of
warrants or rights granted to underwriters in connection with such a public
offering.
(iii) In the event the corporation should at any time or
from time to time after the applicable Purchase Date 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 applicable Conversion Price of each series of the Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding
at any time after the applicable Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the applicable Conversion Price for the Preferred Stock 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.
(e) 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(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
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 the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the
10.
<PAGE> 35
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
(f) Recapitalizations. 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 in Section 2) provision shall be made so that the holders of
the Preferred Stock shall thereafter be entitled to receive upon conversion of
the Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion 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 the
Preferred Stock after the recapitalization (including adjustment of the
applicable Conversion Price then in effect and the number of shares purchasable
upon conversion of the Preferred Stock) to the end that the provisions of this
Section 4 shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by 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 Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the 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 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 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 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 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 for such series of Preferred Stock 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 Preferred Stock.
11.
<PAGE> 36
(i) 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 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 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.
(j) 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 the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the 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 the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
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, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these articles.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
5. Voting Rights.
(a) General. Each holder of shares of Preferred Stock shall have
the right to one vote for each share of Common Stock into which such Preferred
Stock could then be converted, and 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 shareholders' 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. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
(b) The number of directors of this corporation shall be seven
(7). Notwithstanding subsection 5(a) above, the holders of Preferred Stock,
voting as a single class, shall be entitled to elect five (5) directors of the
corporation, and the holders of Common Stock, voting as a separate class, shall
be entitled to elect two (2) directors. At any meeting held for the purpose of
electing or nominating directors, the presence in person or by proxy of the
holders of
12.
<PAGE> 37
a majority of the Preferred Stock then outstanding shall constitute a quorum of
the Preferred Stock for the election or nomination of directors to be elected or
nominated solely by the holders of Preferred Stock. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the Common Stock then outstanding shall constitute a quorum of
the Common Stock for the election of directors to be elected solely by the
holders of Common Stock. A vacancy in any directorship elected by the holders of
Preferred Stock shall be filled only by vote of the holders of Preferred Stock
and any vacancy in any directorship elected by the holders of Common Stock shall
be filled only by vote of the holders of Common Stock.
6. Protective Provisions. So long as any shares of 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 sixty
percent (60%) of the then outstanding shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock voting together as a single class:
(a) sell, convey, or otherwise dispose of or encumber (other than
pursuant to a credit arrangement in the ordinary course of business) 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) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of; or
(b) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock; or increase (other
than by redemption or conversion) the total number of authorized shares of
Common Stock, Preferred Stock, Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock; or
(c) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock with respect to voting,
dividends or upon liquidation; or
(d) increase the authorized number of directors of the
corporation.
In addition, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least eighty percent (80%) of the then outstanding shares of
Series D Preferred Stock, amend the articles of incorporation so as to,
adversely affecting the Series D Preferred Stock in a different manner than
other shares of Preferred Stock, do any of the things described in Section
903(a)(1) through 903(a)(7) of the California Corporations Code with respect to
either the Preferred Stock or the Series D Preferred Stock, all pursuant to and
within the meanings of Sections 903(a) and 903(b) of the California Corporation
Code as in effect on January 1, 1998.
13.
<PAGE> 38
7. Status of Converted or Redeemed Stock. In the event any shares of
Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section
4 hereof, the shares so converted or redeemed shall be cancelled and shall not
be issuable by the corporation. The Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by this
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, granting this corporation rights of first refusal on stock
transfers or pursuant to stock purchase agreements with employees, consultants,
officers or directors providing for repurchase of shares at cost upon
termination of employment or services, Sections 502 and 503 of the California
General Corporation Law shall not apply in whole or in part with respect to such
repurchases.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
Section 1. The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. This corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
applicable limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the corporation and its
shareholders.
14.
<PAGE> 39
Section 3 Any repeal or modification of the foregoing provisions of this
Article IV by the shareholders of this corporation shall not adversely affect
any right or protection of a director of the corporation existing at the time of
such repeal or modification.
***
THREE: The foregoing amendment has been duly approved by the Board of
Directors.
FOUR: The foregoing amendment has been duly approved by the required
vote of shareholders in accordance with Sections 902 and 903 of the California
Corporations Code. The number of outstanding shares of the corporation is
2,000,000 shares of Series A Preferred Stock, 2,000,000 shares of Series B
Preferred Stock, 333,333 shares of Series C Preferred Stock, 2,228,945 shares of
Series D Preferred Stock and 1,789,068 shares of Common Stock. No shares of
Series E Preferred Stock are outstanding. The number of shares voting in favor
of the amendment equaled or exceeded the vote required. The percentage vote
required was (i) more than 50% of the outstanding shares of Common Stock, Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock voting together as a single class, (ii) more than 50% of the
outstanding shares of Common Stock voting as a separate class, and (iii) at
least 60% of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, voting together as a single class.
15.
<PAGE> 40
IN WITNESS WHEREOF, the undersigned has executed this certificate on
April 4, 2000.
----------------------------------------------
Jack Fitzpatrick, Vice President and Secretary
The undersigned certifies under penalty of perjury that he has read the
foregoing Restated Articles of Incorporation and knows the contents thereof, and
that the statements therein are true.
Executed at San Diego, California, on April 4, 2000.
----------------------------------------------
Jack Fitzpatrick
<PAGE> 41
EXHIBIT B
amended and restated iNVESTORS' RIGHTS AGREEMENT
Exhibit B-1
<PAGE> 42
DISCOVERY PARTNERS INTERNATIONAL, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-----------
April 7, 2000
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights ............................................... 1
1.1 Definitions ................................................ 1
1.2 Request for Registration ................................... 3
1.3 BMS Request for Registration ............................... 4
1.4 RPR Request for Registration ............................... 6
1.5 Company Registration ....................................... 7
1.6 Obligations of the Company ................................. 7
1.7 Furnish Information ........................................ 8
1.8 Expenses of Demand Registration ............................ 8
1.9 Expenses of Company Registration ........................... 9
1.10 Underwriting Requirements .................................. 9
1.11 Delay of Registration ...................................... 10
1.12 Indemnification ............................................ 10
1.13 Reports Under Securities Exchange Act of 1934 .............. 12
1.14 Form S-3 Registration ...................................... 12
1.15 Assignment of Registration Rights .......................... 13
1.16 Limitations on Subsequent Registration Rights .............. 14
1.17 "Market Stand-Off" Agreement ............................... 14
1.18 Termination of Registration Rights ......................... 15
2. Covenants of the Company .......................................... 15
2.1 Delivery of Financial Statements ........................... 15
2.2 Inspection ................................................. 16
2.3 Termination of Information and Inspection Covenants ........ 16
2.4 Right of First Offer ....................................... 16
2.5 Indemnification ............................................ 18
2.6 Salaries of Officers ....................................... 18
3. Miscellaneous ..................................................... 18
3.1 Successors and Assigns ..................................... 18
3.2 Governing Law .............................................. 19
3.3 Counterparts ............................................... 19
3.4 Titles and Subtitles ....................................... 19
3.5 Notices .................................................... 19
3.6 Expenses ................................................... 19
3.7 Amendments and Waivers ..................................... 19
3.8 Severability ............................................... 20
3.9 Aggregation of Stock ....................................... 20
3.10 Entire Agreement; Amendment; Waiver ........................ 20
3.11 Representation ............................................. 20
</TABLE>
Schedule A Schedule of Investors
<PAGE> 44
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement")
is made as of the 7th day of April, 2000, by and between Discovery Partners
International. Inc. (formerly known as IRORI), a California corporation (the
"Company"), and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor".
RECITALS
WHEREAS, the Company and certain of the Investors are parties to the
Series E Preferred Stock Purchase Agreement of even date herewith (the
"Preferred Stock Agreement");
WHEREAS, certain of the Investors are presently holders of the Company's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock and pursuant thereto have entered into an Investors'
Rights Agreement with the Company dated October 19, 1995, as amended by
Amendment No. 1 dated November 5, 1996, Amendment No. 2 dated October 31, 1997,
Amendment No. 3 dated April 17, 1998, Amendment No. 4 dated June 1, 1998,
Amendment No. 5 dated June 15, 1998, Amendment No. 6 dated October 29, 1998 and
Amendment No. 7 dated January 19, 2000 (together, the "Original Rights
Agreement"); and
WHEREAS, in order to induce the Company to enter into the Preferred
Stock Agreement and to induce certain Investors to invest funds in the Company
pursuant to the Preferred Stock Agreement, all the Investors and the Company
wish to amend and restate the Original Rights Agreement so that this Agreement
will govern the rights of all the Investors to cause the Company to register
shares of the Company's common stock ("Common Stock") issuable to any Investors
upon conversion of their respective shares of the Company's preferred stock
("Preferred Stock"), and certain other matters as set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.15 hereof.
<PAGE> 45
(d) The term "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
(e) The terms "register", "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(f) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock, (ii) the 130,000 shares of Common Stock held by
Enterprise Partners, III, L.P. and Enterprise Partners III, Associates, (iii)
the 150,000 shares of Common Stock issuable upon the exercise of that certain
Common Stock Purchase Warrant dated as of July 18, 1995 between the Company and
Enterprise Partners III, L.P.; provided, however that such shares of Common
Stock shall not be deemed Registrable Securities for purposes of calculating
either numerators or denominators under Sections 1.2, 1.14, 1.16 and 3.7 and
(iv) 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 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or such
specified Common Stock, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned. Provided, further, however, that for the purposes of
Section 1.3 and other sections to the extent they refer to Section 1.3 (and for
interpretation of the definitions of "Registrable Securities then outstanding"
and "Holder" as used in or with reference to Section 1.3) only, the term
"Registrable Securities" means (i) the Common Stock issuable or issued upon
conversion of the Series D Preferred Stock initially issued to Bristol-Myers
Squibb Company ("BMS") and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of such Series D Preferred Stock initially issued
to BMS -- and excluding from this sentence's special definition, however, any
Registrable Securities no longer held by BMS. Provided, further, however, that
for the purposes of Section 1.4 and other sections to the extent they refer to
Section 1.4 (and for interpretation of the definitions of "Registrable
Securities then outstanding" and "Holder" as used in or with reference to
Section 1.4) only, the term "Registrable Securities" means additionally (i) the
Common Stock issuable or issued upon conversion of the Series D Preferred Stock
initially issued to Rhone-Poulenc Rorer International Holdings Inc. ("RPR") and
(ii) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of such Series D Preferred Stock initially issued to RPR -- and
excluding from this sentence's special definition, however, any Registrable
Securities no longer held either by RPR or by a company which is then in the
same corporate family as RPR.
(g) 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
2
<PAGE> 46
number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and
Exchange Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i) December
31, 2001, or (ii) eleven (11) months 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
thirty percent (30%) of the Registrable Securities then outstanding that the
Company file a registration statement under the Act covering the registration of
at least forty percent (40%) of the Registrable Securities then outstanding (or
a lesser percent of the Registrable Securities if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$10,000,000,) then the Company shall:
(i) within ten (10) days of the receipt thereof,
give written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any
event within 90 days of the receipt of such request, the registration under the
Act of all Registrable Securities which the Holders request to be registered,
subject to the limitations of subsection 1.2(b), within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 3.5.
(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 subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include his 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 1.6(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
approved for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, 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; provided, however,
3
<PAGE> 47
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting. For purposes of the preceding sentence
concerning apportionment, for an Initiating Holder that is a holder of
Registrable Securities that is a partnership or corporation, the partners,
retired partners and shareholders of such Initiating Holder (and, in the case of
a partnership, any affiliated partnerships), or the estates and family members
of any such partners and retired partners and any trusts for the benefit of any
one of the foregoing persons shall be deemed to be a single "Initiating Holder,"
and any proportionate reduction with respect to such "Initiating Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals, including such "Initiating Holders" as defined
in this sentence.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, 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 shareholders 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 taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than twice in any 12-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date
thirty 30 days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a registration subject to Section 1.5 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.14 below.
1.3 BMS Request for Registration.
(a) If the Company shall receive at any time after
eleven months 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 BMS that the Company file a registration
statement under the Act covering the registration of at least forty percent
(40%) of the Registrable Securities then outstanding (or a lesser percent of the
Registrable Securities if the anticipated aggregate offering
4
<PAGE> 48
price, net of underwriting discounts and commissions, would exceed $10,000,000),
then the Company shall effect as soon as practicable, and in any event within 90
days of the receipt of such request, the registration under the Act of all
Registrable Securities which BMS requests to be registered, subject to the
limitations of subsection 1.3(b).
(b) If BMS intends to distribute the Registrable
Securities covered by its request by means of an underwriting, it shall so
advise the Company as a part of its request made pursuant to subsection 1.3(a).
The underwriter will be selected by the Company and shall be reasonably
acceptable to BMS. BMS shall (together with the Company as provided in
subsection 1.6(e)) enter into an underwriting agreement in customary form with
the underwriter or underwriters. Notwithstanding any other provision of this
Section 1.2A, if the underwriter advises BMS in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the number
of shares of Registrable Securities that may be included in the underwriting
shall be so limited; provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to BMS 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 shareholders 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 taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of BMS; provided, however, that the Company may not utilize this
right more than twice in any 12-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.3:
(i) After the Company has effected one
registration pursuant to this Section 1.3 and such registration has been
declared or ordered effective; or
(ii) During the period starting with the date
thirty (30) days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1.5 hereof; provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective.
1.4 RPR Request for Registration.
(a) If the Company shall receive at any time after
eleven months 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 RPR that the Company file a registration
statement under the Act covering the registration of at least forty percent
(40%) of the Registrable Securities then
5
<PAGE> 49
outstanding (or a lesser percent of the Registrable Securities if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $10,000,000), then the Company shall effect as soon as
practicable, and in any event within 90 days of the receipt of such request, the
registration under the Act of all Registrable Securities which RPR requests to
be registered, subject to the limitations of subsection 1.4(b).
(b) If RPR intends to distribute the Registrable
Securities covered by its request by means of an underwriting, it shall so
advise the Company as a part of its request made pursuant to subsection 1.4(a).
The underwriter will be selected by the Company and shall be reasonably
acceptable to RPR. RPR shall (together with the Company as provided in
subsection 1.6(e)) enter into an underwriting agreement in customary form with
the underwriter or underwriters. Notwithstanding any other provision of this
Section 1.4, if the underwriter advises RPR in writing that marketing factors
require a limitation of the number of shares to be sold in the offering, then
the number of shares of Registrable Securities that may be included in the
underwriting shall be so limited; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
offering.
(c) Notwithstanding the foregoing, if the Company shall
furnish to RPR 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 shareholders 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 taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of RPR; provided, however, that the Company may not utilize this
right more than twice in any 12-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.4:
(i) After the Company has effected one
registration pursuant to this Section 1.4 and such registration has been
declared or ordered effective; or
(ii) During the period starting with the date
thirty (30) days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1.5 hereof; provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective.
1.5 Company Registration. Except with respect to the initial
public offering of the Company's securities for which no notice shall be
required and the provisions of this Section 1.5 shall not apply, if (but without
any obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its stock or other securities under the 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, a registration on any form which does not
6
<PAGE> 50
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
3.5, the Company shall, subject to the first sentence of this Section and the
provisions of Section 1.10, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.6 Obligations of the Company. Whenever required under this
Section 1 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 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 a period of up to the
earlier of one hundred twenty (120) days or until the distribution contemplated
in the Registration Statement has been completed.
(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 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 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 best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter 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 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
7
<PAGE> 51
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) Cause all such Registrable Securities and
Registrable Common Stock registered pursuant hereto to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities and Registrable Common Stock registered pursuant hereto
and a CUSIP number for all such Registrable Securities and Registrable Common
Stock, in each case not later than the effective date of such registration.
1.7 Furnish Information.
(a) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to
any registration requested pursuant to Sections 1.2, 1.3, 1.4 or 1.14 if, due to
the operation of subsection 1.7(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsections 1.2(a), 1.3(a), 1.4(a)
or 1.14(b), whichever is applicable.
1.8 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 or 1.3 or 1.4,
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 1.2 or 1.3 or 1.4 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 1.2 or 1.3 or 1.4; provided further, that if the
registration request is withdrawn, at the request of the Holders of a majority
of the Registrable Securities to be registered, within one week after the
Company advises such Holders of a delay pursuant to Section 1.2(c) or (d)(ii),
Section 1.3(c) or (d)(ii), or Section 1.4(c) or (d)(ii), then the Holders shall
not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2 or 1.3 or 1.4. And provided further, with respect to the
main provision in the preceding sentence, 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 and have withdrawn the request with reasonable
promptness
8
<PAGE> 52
following disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 1.2 or 1.3 or 1.4.
1.9 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 1.5 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the reasonable fees and disbursements of
one counsel for the selling Holders, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.10 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock pursuant to
Section 1.5, the Company shall not be required under Section 1.5 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 (or by other persons entitled to select the underwriters), and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion 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 determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata (as nearly as practicable)
among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders);
provided, however, that the number of shares of Registrable Securities to be
included in such underwriting shall not be reduced unless all other shares of
securities (except the securities proposed to be sold by the Company in such
underwriting) are first entirely excluded from the underwriting but in no event
shall the amount of securities of the selling Holders included in the offering
be reduced below thirty percent (30%) of the total amount of securities included
in such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
1.11 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 1.
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1.12 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act 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 Act, the 1934 Act, or any rule or regulation promulgated under
the Act, the 1934 Act; and the Company will pay to each such Holder, 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; provided, however, that the indemnity agreement contained
in this subsection 1.12(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, underwriter or controlling person. 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 has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, or the 1934 Act 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 pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.12(b), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.12(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this subsection
1.12(b) exceed the gross proceeds from the offering received by such Holder.
(b) Promptly after receipt by an indemnified party under
this Section 1.12 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
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under this Section 1.12, 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 which may
be represented without conflict by one counsel) shall have the right to retain
one separate 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 1.12, 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 1.12.
(c) If the indemnification provided for in this Section
1.12 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.
(d) 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.
(e) The obligations of the Company and Holders under
this Section 1.12 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.13 Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the 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:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective
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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 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 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 ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 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.
1.14 Form S-3 Registration. In case the Company shall receive
from the Holders of at least twenty percent (20%) of the Registrable Securities
then outstanding 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 1.14: (1) if
Form S-3 is not available for such offering by the Holders; (2) 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 $500,000; (3) 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 materially detrimental to the Company and its
shareholders for such Form
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S-3 Registration to be effected at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 registration statement for a
period of not more than 60 days after receipt of the request of the Holder or
Holders under this Section 1.14; provided, however, that the Company shall not
utilize this right more than once in any twelve month period; (4) if the Company
has, within the twelve (12) month period preceding the date of such request,
already effected two registrations on Form S-3 for the Holders pursuant to this
Section 1.14; or (5) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
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 1.14, 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. Registrations effected pursuant to
this Section 1.14 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2, 1.3 or 1.4.
1.15 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), or is a company which is at the time of such transfer in the
same corporate family as RPR and thereafter remains in the same corporate family
as RPR, provided: (a) 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; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.17 below;
and (c) 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 Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.16 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
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prospective holder of any securities of the Company (except those shares of
Series E Preferred Stock to be issued and sold in connection with the Purchase
Agreement) which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 or Section 1.5
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 his securities will not reduce the amount of the
Registrable Securities of the Holders which is 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
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2. In addition, 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 Registrable Securities then outstanding
(within the meaning of the proviso in Section 1.1(f)), enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder to include such securities in any
registration filed under Section 1.3 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 his securities will
not reduce the amount of Registrable Securities of the Holders which is
included. In addition, 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
Registrable Securities then outstanding (within the meaning of the applicable
proviso in Section 1.1(f)), enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder to include such securities in any registration
filed under Section 1.4 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 his securities will not
reduce the amount of Registrable Securities of the Holders which is included in
any registration pursuant to Section 1.4 hereof.
1.17 "Market Stand-Off" Agreement. Each Holder hereby agrees
that, during the period of duration specified by the Company and an underwriter
of common stock or other securities of the Company, following the effective date
of a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) Such agreement shall not exceed one hundred eighty
(180) days for the first such 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) All officers and directors of the Company and all
other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements.
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In order to enforce the foregoing covenants, 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 restrictions) until the end of such period.
1.18 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right
provided for in this Section 1 after the earlier of (i) five (5) years following
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public, or
(ii) such time as the Holder can sell all of such stock under Rule 144(k) (or
successor rule) promulgated by the SEC and such Holder holds less than one
percent (1%) of the outstanding stock of the Company.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. A "Major Investor" means
an Investor who holds a minimum of 250,000 shares of the Company's Preferred
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations); and in the case of transfers within
RPR's corporate family as permitted by Section 1.15, then so long as RPR's
corporate family as a whole holds a minimum of 250,000 shares of the Company's
Preferred Stock (subject to such adjustment), the corporation within RPR's
corporate family which owns the most such shares shall be entitled to the rights
of a Major Investor. The Company shall deliver to each Major Investor:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles, and if requested by a Major Investor, audited and
certified by independent public accountants of nationally recognized standing
selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, schedule
as to the sources and application of funds for such fiscal quarter and an
unaudited balance sheet as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail;
(d) as soon as practicable, but in any event by December
1 of each year, a budget and business plan for the next fiscal year, prepared on
a monthly basis, including balance sheets and sources and applications of funds
statements for such months and, as soon as
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prepared, any other budgets or revised budgets prepared by the Company. The
Company's Board of Directors shall approve each such annual budget by January 31
of the year for which such budget applies.
2.2 Inspection. The Company shall permit each Major Investor, at
such Major 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 the Major Investor; provided, however, that the Company shall not
be obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
2.3 Termination of Information and Inspection Covenants. Subject
to their earlier termination pursuant to the specific terms of each Section, the
covenants set forth in Sections 2.1, 2.2 and 2.4 shall terminate as to Major
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public in which all shares Preferred Stock are converted to Common
Stock is consummated or when the Company first becomes subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever
event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor a right of first offer with respect to future sales by the Company of
its Shares (as hereinafter defined). For purposes of this Section 2.4, Major
Investor includes any general partners and affiliates of a Major Investor. A
Major 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 shares of, any class of its
capital stock, the Company shall first make an offering of any such shares or
securities not purchased by Riccardo Pigliucci pursuant to Section 4 of the Key
Employee Agreement dated April 17, 1998 (the "Employment Agreement") between
Riccardo Pigliucci and the Company (such shares or securities not so purchased
by Riccardo Pigliucci are hereinafter referred to as the "Shares") to each Major
Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investor stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice,
the Major 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 A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and/or Series E
Preferred Stock then held, by such Major Investor bears to the total number of
shares of Common Stock of the Company then outstanding (assuming full conversion
of all convertible securities) issued and
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held, or issuable upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or
Series E Preferred Stock then held, by all the Major Investors. The Company
shall promptly, in writing, inform each Major Investor which purchases all the
shares available to it ("Fully-Exercising Major Investor") of any other Major
Investor's failure to do likewise. During the ten-day period commencing after
receipt of such information, each Fully-Exercising Major Investor shall be
entitled to obtain that portion of the Shares for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major Investors
which is equal to the proportion that the number of shares of Common Stock
issued and held, or issuable upon conversion of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or
Series E Preferred Stock then held, by such Fully-Exercising Major Investor
bears to the total number of shares of Common Stock issued and held, or issuable
upon conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred
Stock then held, by all Fully-Exercising Major Investors who wish to purchase
some of the unsubscribed shares.
(c) If all Shares which Major Investors are entitled to
obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided
in subsection 2.4(b) hereof, the Company may, during the 30-day period following
the expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at 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 30 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 the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall
not be applicable (i) to the issuance and sale of the Series E Preferred Stock
pursuant to the Preferred Stock Agreement, (ii) to the issuance or sale of not
to exceed 2,450,000 shares of common stock (or options therefor) to employees,
consultants, directors or officers of the Company (and not repurchased at cost
by the Company in connection with the termination of employment or service
relationship) subsequent to the date of this Agreement, (iii) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
common stock, registered under the Act pursuant to a registration statement on
Form S-1, (iv) to the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities, (v) to the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, (vi) to the issuance of stock, warrants or other securities
or rights to persons or entities with which the Company has or is establishing
business relationships provided such issuances are for other than primarily
equity financing purposes and involve other strategic elements which may include
without limitation, a joint marketing agreement, a license agreement, or a
technology development agreement, or (vii) to the issuance and sale of bridge
loan notes and associated warrants in 1998 and December 1999.
(e) The right of first offer set forth in this Section
2.4 may not be assigned or transferred, except that (i) such right is assignable
by each Holder to any wholly owned
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subsidiary or parent of, or to any corporation or entity that is, within the
meaning of the Act, controlling, controlled by or under common control with, any
such Holder, and (ii) such right is assignable between and among any of the
Holders.
2.5 Indemnification. The Company shall take all actions
necessary to indemnify its directors to the maximum extent permitted by
applicable law, including, without limitation, amending the Company's Articles
of Incorporation and Bylaws and entering into contracts with the directors to
provide such indemnification; provided, however, that the Company shall not be
required to obtain directors insurance unless directed by the Board of
Directors.
2.6 Salaries of Officers. The Company's Board of Directors shall
approve the titles of officers and management of the Company and all salaries
and other compensation matters, including option grants, employee bonuses or
profit sharing plans, shall be reviewed and approved by the Company's Board of
Directors.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). 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.
3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 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.
3.4 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.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be sent to
the address/fax number indicated for such party on the signature page hereof
(provided that any party at any time may change its address/fax number for
notice by ten (10) days' advance written notice to the other parties), and shall
be deemed effectively given upon (i) personal delivery to the party to be
notified, (ii) the time of successful facsimile transmission to the party to be
notified, (iii) sending by reputable overnight delivery service or (iv) upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid.
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3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, 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.
3.7 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 either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock then
outstanding (including common stock issued upon conversion thereof), voting
together as a class (or, in the case of the provisions of Section 1.3 for the
special benefit of the Series D Preferred Stock which was initially issued to
BMS and the provisions of other Sections to the extent they are with reference
to Section 1.3, only with the written consent of the Company, the holders of a
majority of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock then
outstanding (including common stock issued upon conversion thereof), voting
together as a class, and the holders of a majority of the Common Stock issuable
or issued upon conversion of the Series D Preferred Stock which was initially
issued to BMS) (or, in the case of the provisions of Section 1.4 for the special
benefit of the Series D Preferred Stock which was initially issued to RPR and
the provisions of other Sections to the extent they are with reference to
Section 1.4, only with the written consent of the Company, the holders of a
majority of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock then
outstanding (including common stock issued upon conversion thereof), voting
together as a class, and the holders of a majority of the Common Stock issuable
or issued upon conversion of the Series D Preferred Stock which was initially
issued to RPR) (or, in the case of any amendment or waiver which discriminates
particularly against all the Series D Preferred Stock, only with the written
consent of the Company, the holders of a majority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock then outstanding (including common stock
issued upon conversion thereof), voting together as a class, and the holders of
a majority of the Series D Preferred Stock then outstanding (including common
stock issued or issuable upon conversion thereof)) (or, in the case of any
amendment or waiver which discriminates particularly against the Series E
Preferred Stock, only with the written consent of the Company, the holders of a
majority of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock then
outstanding (including common stock issued upon conversion thereof), voting
together as a class, and the holders of not less than eighty percent (80%) of
the Common Stock issued or issuable upon conversion of the Series E Preferred
Stock. Any amendment or waiver effected in accordance with this paragraph shall
be binding upon each holder of any Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and/or Series E
Preferred Stock then outstanding (and common stock issued upon conversion
thereof), each future holder of all such shares, and the Company.
3.8 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
19
<PAGE> 63
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
3.9 Aggregation of Stock. All shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock and any Common Stock issued upon conversion
thereof 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.
3.10 Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
3.11 Representation. By executing this Agreement, Investor
acknowledges and agrees that Brobeck, Phleger & Harrison represents the Company
solely and that each Investor has been advised to, and has had an opportunity
to, consult with its own attorney in connection with this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE> 64
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
DISCOVERY PARTNERS INTERNATIONAL, INC.
(formerly known as IRORI), a California
corporation
By:
---------------------------------
Riccardo Pigliucci, Chief Executive Officer
Address: 9640 Towne Center Drive, San Diego, CA 92121
INVESTORS:
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III,
L.P., Its General Partner
By:
---------------------------------
General Partner
Address: 1205 Prospect Street, Suite 500
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III,
L.P., Its General Partner
By:
---------------------------------
General Partner
Address: 1205 Prospect Street, Suite 500
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 65
MAYFIELD VIII
<TABLE>
<S> <C>
By:
---------------------------------
Its General Partner
By:
---------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II
By:
---------------------------------
Its General Partner
By:
---------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
CROSSPOINT VENTURE PARTNERS-1996
By:
---------------------------------
Don Milder, General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
</TABLE>
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 66
<TABLE>
<S> <C>
CROSSPOINT VENTURE PARTNERS LS-1997
By:
---------------------------------
Don Milder, General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92714
AGILENT TECHNOLOGIES, INC., f/k/a
Hewlett-Packard Company
By:
---------------------------------
Its:
---------------------------------
Address: Mail Stop 20 BQ
3000 Hanover Street
Palo Alto, CA 94304
Attn: Craig Norlin, Legal Counsel
BRISTOL-MYERS SQUIBB COMPANY
By:
---------------------------------
Its:
---------------------------------
Address: P.O. Box 4000
Route 206 & Province Line Road
Princeton, NJ 08543-4000
Attn: Vice President and Senior Counsel,
Pharmaceutical Research Institute and
Worldwide Strategic Business
Development
</TABLE>
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 67
<TABLE>
<S> <C>
AVENTIS, f/k/a Rhone-Poulenc Rorer
International Holdings, Inc.
By:
---------------------------------
Its:
---------------------------------
Address: 3 Park Avenue
New York, NY 10016
Attn: Norma Hunt-Allen, Investor Relations
PACIFIC VENTURE GROUP II, L.P.
By:
---------------------------------
Its:
---------------------------------
Address: 15635 Alton Parkway
Suite 230 Irvine, CA 92618
BAYSTAR CAPITAL, L.P., a Delaware Limited
Partnership
By: BayStar Capital Management LLC,
---------------------------------
Its General Partner
By:
---------------------------------
Steve Lamar, Vice President
Address: 425 Market Street, 22nd Floor
San Francisco, CA 94105
</TABLE>
[SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE> 68
<TABLE>
<S> <C>
BAYSTAR INTERNATIONAL LTD., a British Virgin
Islands Corporation
By: BayStar International Management, LLC
---------------------------------
Its General Partner
By:
---------------------------------
Steve Lamar, Vice President
Address: 425 Market Street, 22nd Floor
San Francisco, CA 94105
------------------------------------
Hayden J. Trubitt
Address: c/o Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
</TABLE>
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 69
EXHIBIT C
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
EXHIBIT C-1
<PAGE> 70
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (the "Agreement") is
made as of April 7, 2000, by and among Discovery Partners International, Inc.
(formerly known as IRORI), a California corporation (the "Company"), the holders
of shares of the Company's Common Stock listed on Exhibit A (each of which is
herein referred to as a "Shareholder", which term includes his or her heirs,
executors, guardians, successors and assigns) and the investors listed on
Exhibit C hereto, each of which is herein referred to as an "Investor."
WHEREAS, the Company and certain of the Investors are parties to the
Series E Preferred Stock Purchase Agreement of even date herewith (the "Stock
Purchase Agreement").
WHEREAS, each of the Shareholders is the beneficial owner of the number
of shares of the Company's Common Stock listed on Exhibit A attached hereto (the
"Stock," which term for purposes of this Agreement also includes any additional
shares of Common Stock of the Company now owned or hereafter acquired by any
Shareholder).
WHEREAS, certain of the Investors are presently holders of the Company's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock and in connection with the purchases of such shares
have entered into a Shareholders' Agreement dated as of October 19, 1995, as
amended October 19, 1995, October 31, 1997, June 1, 1998 and June 15, 1998
(together, the "Original Agreement").
WHEREAS, in order to induce the Company to enter into the Stock Purchase
Agreement and to induce certain Investors to invest funds in the Company
pursuant to the Stock Purchase Agreement, the Shareholders, all of the Investors
and the Company wish to amend and restate the Original Agreement so that this
Agreement will govern the rights of the parties with respect to the matters set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Restrictions on Transfer. Except as permitted by the terms of this
Agreement, a Shareholder may not make any sale, exchange, transfer, assignment,
gift, pledge, encumbrance, hypothecation or alienation of any shares of the
Stock, or any interest in such shares, now held by or hereafter acquired by such
Shareholder, whether voluntarily or involuntarily or by operation of law
(hereinafter collectively referred to as a "transfer").
2. Intentionally Omitted.
3. Intentionally Omitted.
4. Right of First Refusal.
<PAGE> 71
(a) Notice to the Company and Investor.
(i) In the event any Shareholder (the "Transferring
Shareholder") desires to transfer any Stock other than as specifically provided
in Section 6 below, such Shareholder must deliver a notice in writing by
certified mail ("Notice") to the Company stating (A) his bona fide intention to
sell or transfer such shares, (B) the number of such shares to be sold or
transferred, (C) the price, if any, for which he proposes to sell or transfer
such shares, and (D) the name of the proposed purchaser or transferee.
(ii) In the event the proposed transfer is partially or
completely in exchange for assets other than cash, then such assets shall be
deemed to have a cash value in the amount determined by the Company's Board of
Directors in its sole good faith opinion, in which case such cash value
ascertained by the Board, when added to any cash to be exchanged and then
divided by the number of shares of Stock to be transferred, shall be deemed the
price per share set forth in the Notice. In the event of a gift, property
settlement or other transfer in which the proposed purchaser or transferee is
not paying the full price for the Stock, which transfer is not otherwise
exempted from the terms of Section 4 and 5 hereof, the price shall be deemed to
be the fair market value of the Stock as determined in good faith by the Board
of Directors.
(b) Company Right of First Refusal. The Company shall have an
exclusive, irrevocable option (the "Company Option"), at any time within thirty
(30) days of receipt of the Notice, to purchase some or all of the Stock to
which the Notice refers at the price per share specified in the Notice. The
Company shall exercise the Company Option by written notice signed by an officer
of the Company and delivered or mailed to the Transferring Shareholder (the
"Company Settlement Notice"), which notice shall specify the time, place and
date for settlement of such purchase.
(c) Company Settlement. Within ten (10) days of receipt of the
Company Settlement Notice, the Transferring Shareholder must deliver to the
Company all certificates for the Stock being acquired by the Company which are
not already in the Company's custody, together with proper assignments in blank
of the Stock with signatures properly guaranteed and with such other documents
as may be required by the Company to provide reasonable assurance that each
necessary endorsement is genuine and effective, and the Company must thereupon
deliver to the Transferring Shareholder full cash payment for the Stock being
acquired, provided that if the terms of payment set forth in the Notice were
other than cash against delivery, the Company shall pay for said shares on the
same terms and conditions set forth in such Notice.
(d) Investor Right of First Refusal. In the event that the
Company does not exercise the Company Option as to all the shares to be sold or
transferred in accordance with Section 4 hereof, the Company shall not later
than thirty (30) days from the date of receipt of the Notice hereof give written
notice to the Investors of the Company's nonexercise (or partial exercise) of
the Company Option, which notice shall enclose the Notice and the details of the
Company's partial exercises (if any), and shall specify the procedures by which
each Investor may exercise the option to purchase not more than its Pro Rata
Share (as defined in Section 4(g) below) of the remaining shares of Stock (the
"Investor Option"). For thirty (30) calendar days following the expiration of
the Company Option, each Investor may exercise its Investor Option
-2-
<PAGE> 72
at the same price and upon the same terms as set forth in the Notice. Any
Investor desiring to exercise its Investor Option shall deliver to the Company
and to the Transferring Shareholder a written notice of election to purchase the
shares with respect to which the Investor option is to be exercised. The Company
shall, within three (3) days after the end of such thirty (30) day period,
inform each Investor purchasing all of the shares available to it (a
"Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten (10) day period commencing after receipt of such information,
each Fully-Exercising Investor shall be entitled to give written notice to the
Company and the Transferring Shareholder of its election (the "Investor
Over-Allotment Option") to purchase that portion of the shares for which
Investors were entitled to subscribe but which were not subscribed for by the
Investors equal to the proportion that the Pro Rata Share of such
Fully-Exercising Investor bears to the Pro Rata Shares of all of the
Fully-Exercising Investors who wish to purchase some of the unsubscribed shares,
or such other proportions as the Investors shall determine.
(e) Assignment of Investor Option. Each Investor may assign its
rights under this Section 4 to (i) any of its limited partners or shareholders,
(ii) any entity related to or affiliated with such Investor, or (iii) another
Investor; provided, however, that if payment is to be made in any manner other
than all cash against delivery of the Stock being sold, such assignee must be at
least as creditworthy as the Investor so assigning its rights.
(f) Investor Settlement. Promptly upon expiration of the
Investor Option and the Investor Over-Allotment Option, the Company shall
deliver a notice in writing to the Transferring Shareholder and each Investor
and/or assignee who elected to acquire a portion of the Stock subject to the
Investor Option (the "Investor Settlement Notice") setting forth the number of
shares of Stock to be sold to each Investor and/or assignee and the price
thereof. Within ten (10) days of receipt of the Investor Settlement Notice, the
Transferring Shareholder must deliver to the Company any certificates for the
Stock being acquired by the Investors and/or assignees which are not already in
the Company's custody, together with proper assignments in blank of the Stock
with signatures properly guaranteed and with such other documents as may be
required by the Company to provide reasonable assurance that each necessary
endorsement is genuine and effective. Within ten (10) days of receipt of the
Investor Settlement Notice, each Investor and/or assignee acquiring a portion of
the Stock must deliver to the Company (a) full cash payment for the portion of
the subject Stock being so acquired, provided that if the terms of payment set
forth in the Notice were other than cash against delivery, the Investors
electing to acquire a portion of the subject Stock and/or their assignees shall
pay for said shares on the same terms and conditions set forth in such Notice;
and, if applicable, (b) evidence satisfactory to the Company that such assignee
has become a party to this Agreement. The Company shall thereafter promptly
remit full payment for the Stock acquired hereby to the Transferring Shareholder
and deliver the new or assigned certificates to the Investors and/or assignees,
as appropriate. (g) Determination of Pro Rata Share. For purposes of this
Section 4, each Investor's "Pro Rata Share" is the ratio of (i) the total number
of shares of Common Stock and Preferred Stock of the Company held by such
Investor as of the date of the Notice (on an as-converted to Common Stock basis)
to (ii) the total aggregate shares of Common Stock and Preferred Stock of the
Company held by all Investors as of such date (on an as-converted to
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<PAGE> 73
Common Stock basis) that have elected to exercise the Investor Option that is
exercisable at the time such "Pro Rata Share" is determined.
5. Co-Sale Rights in Sales by a Shareholder.
(a) Co-Sale Notice. In the event that less than all of the
shares of Stock proposed to be transferred by a Transferring Shareholder are
acquired by the Company and/or Investors (or assignees) pursuant to the Company
Option and Investor Option set forth in Section 4 above (collectively, the
"Options"), the Company shall deliver, promptly upon expiration of the Options,
a notice in writing to each Investor (the "Co-Sale Notice") reiterating the
names of the prospective Transferee or Transferees, the number of shares of
Stock proposed to be transferred and not acquired pursuant to the Options, and
the price per share at which such shares are proposed to be transferred.
(b) Grant of Co-Sale Rights. Each Investor shall have the right,
exercisable upon written notice to such Transferring Shareholder within fifteen
(15) business days after receipt of the Transferring Shareholder's Co-Sale
Notice, to participate in the sale of the shares on the same terms and
conditions as those set forth in the Co-Sale Notice. To the extent one or more
of the Investors exercise such right of participation, the number of shares that
the Transferring Shareholder may sell in the transaction shall be
correspondingly reduced. The right of participation of each of the Investors
shall be subject to the terms and conditions set forth in this Section:
(i) Each Investor shall be deemed to own the number of
shares of Common Stock which such Investor actually holds plus the number of
shares of Common Stock which are issuable upon conversion of any shares of
Preferred Stock then held by such Investor.
(ii) Each Investor may sell all or any part of a number
of shares of Stock of the Company equal to the product obtained by multiplying
(A) the aggregate number of shares of Common Stock covered by the Co-Sale Notice
by (B) a fraction the numerator of which is the number of shares of Common Stock
and Preferred Stock of the Company at the time owned by the Investor and the
denominator of which is the combined number of shares of Common Stock and
Preferred Stock of the Company at the time owned by the Transferring Shareholder
and Investors.
(iii) To the extent an Investor elects not to sell the
full number of shares it is entitled to sell pursuant to Section 5(b)(ii) above,
the other Investors' rights to participate in the sale shall be increased pro
rata by a corresponding number of shares. (iv) Each Investor may effect its
participation in the sale by delivering to the Transferring Shareholder for
transfer to the purchase offeror one or more certificates, properly endorsed for
transfer, which represent:
A. the number of shares of Common Stock which
the party elects to sell pursuant to this Section 5(b); or
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<PAGE> 74
B. that number of shares of Preferred Stock
which is at such time convertible into the number of shares of Common Stock
which the party has elected to sell pursuant to this Section 5(b); provided,
however, that if the purchase offeror objects to the delivery of Preferred Stock
in lieu of Common Stock, the party may convert and deliver Common Stock as
provided in Section 5(b)(i) above.
(c) Payment of Proceeds. The stock certificates which the
Investors deliver to such Transferring Shareholder pursuant to Section 5(b)
shall be transferred by the Transferring Shareholder to the purchase offeror in
consummation of the sale of the Stock pursuant to the terms and conditions
specified in the Co-Sale Notice, and such Transferring Shareholder shall
promptly thereafter remit to each Investor that portion of the sale proceeds to
which the Investor is entitled by reason of its participation in such sale. To
the extent that the purchase offeror refuses to purchase shares from an Investor
exercising its right of co-sale hereunder, the Transferring Shareholder shall
not sell to such purchase offeror unless or until, simultaneous with such sale,
the Transferring Shareholder shall purchase shares from Investor.
(d) Non-exercise. The exercise or non-exercise of the rights of
the Investors hereunder to participate in one or more sales of Stock made by the
Shareholders shall not adversely affect their rights to participate in
subsequent Stock sales by the Shareholders.
(e) Transfer of Common Shares Upon Failure to Exercise Right of
Co-Sale. If none of the Investors elects to participate in the sale of the Stock
subject to the Co-Sale Notice, the Transferring Shareholder may, not later than
sixty (60) days following the Investors' receipt of the Co-Sale Notice, conclude
a transfer of not less than all of the Stock covered by the Co-Sale Notice on
terms and conditions not more favorable to the transferor than those described
in the Co-Sale Notice. Any proposed transfer on terms and conditions not more
favorable to the transferor than those described in the Co-Sale Notice, as well
as any subsequent proposed transfer of any Stock by the Transferring
Shareholder, shall again be subject to, and require compliance with, the
provisions of Sections 4 and 5 hereof.
6. Exempt Transfers.
(a) Permitted Transactions. Notwithstanding the foregoing, the
co-sale rights and rights of first refusal of the Investors shall not apply to
any transfer by gift to the ancestors, descendants, siblings or spouse of a
Shareholder or to trusts for the benefit of such persons or to any or all of the
partners of a Shareholder that is a general or limited partnership; provided
that the transferee shall furnish the Company and the Investors with a written
agreement to be bound by and comply with all provisions of this Agreement. Such
transferred Stock shall remain "Stock" hereunder, and such transferee shall be
treated as a "Shareholder" for the purposes of this Agreement.
(b) Company Repurchase. The provisions of Sections 4 and 5 of
this Agreement shall not apply to the sale of any Stock to the Company.
7. Stop Transfer Instrument. Any attempt by a Shareholder to transfer
Stock in violation of Sections 4 or 5 hereof, whether voluntary or involuntary,
shall be void and the
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<PAGE> 75
Company agrees it will not effect such a transfer nor will it treat any alleged
transferee as the Shareholder of such shares without the written consent of the
holders of a majority of the shares held by the Investors.
8. Special Provisions.
(a) Shareholder Rights. Until such time as the Company actually
exercises the Company Option and/or the Investors actually exercise the Investor
Option or the Investor Over-Allotment Option under this Agreement, each
Shareholder (or any successors in interest) shall have all the rights of a
shareholder (including voting and dividend rights) with respect to the Stock
subject, however, to the transfer restrictions of Section 1.
(b) Intentionally Omitted.
(c) Market Stand-off Agreement. Each Shareholder hereby agrees
that, during the period of duration specified by the Company and an underwriter
of common stock or other securities of the Company, following the effective date
of an initial registration statement of the Company filed under the Act, it
shall not, to the extent requested by the Company and such underwriter, directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
common stock included in such registration; provided, however, that:
(i) such agreement shall not exceed 180 days for the
first such 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
(ii) such agreement shall not exceed 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.
In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Stock of each
Shareholder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
(d) Future Investors. Upon the purchase by any Investor of
Preferred Stock under a stock purchase agreement, the Company, the Shareholders
and the Investors agree to amend this Agreement to make such Investor a party to
this Agreement (with respect to such shares of Preferred Stock purchased by such
Investor) with rights and obligations equal to and consistent with those of the
Investors under this Agreement, to the extent that such Investor is not already
entitled to such rights.
9. Termination. The right of first refusal and the co-sale rights of an
Investor under Sections 4 and 5 of this Agreement and the correlative
obligations of each Shareholder to such Investor with respect to its Stock shall
terminate at such time as such Investor shall no longer be the owner of any
shares of capital stock of the Company. Unless sooner terminated in
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<PAGE> 76
accordance with the preceding sentence, the rights and obligations under
Sections 4 and 5 of this Agreement shall terminate upon the occurrence of any
one of the following events (each, a "Corporate Transaction"):
(a) the liquidation, dissolution or indefinite cessation of the
business operations of the Company;
(b) the execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company;
(c) immediately prior to the closing of a bona fide firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933 on Form S-1 (or any successor form designated
by the Securities and Exchange Commission).
10. Miscellaneous Provisions.
(a) Notice. Any notice required or permitted to be given to a
party pursuant to the provisions of this Agreement shall be in writing and shall
be effective upon personal delivery or upon deposit in the U.S. mail (or
equivalent independent service), postage prepaid and properly addressed to the
party to be notified as set forth below such party's signature or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto.
(b) Severability. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed and interpreted in such manner as to be effective and valid
under applicable law.
(c) Waiver or Modification. Any waiver, amendment or
modification of this Agreement shall be effective only if evidenced by a written
instrument executed by (i) Shareholders holding a majority of the Stock subject
to this Agreement, (ii) the Company and (iii) Investors, or their assignees,
holding not less than a majority of the Common Stock issued or issuable upon
conversion of the Preferred Stock then held by the Investors (and, in the case
of any waiver, amendment or modification which discriminates particularly
against the Series D Preferred Stock, holding not less than a majority of the
Series D Preferred Stock then held by the Investors). Notwithstanding the
foregoing, additional holders of Common Stock of the Company may be made a party
to this Agreement by signing a counterpart signature page to this Agreement and
shall thereafter be included within the definition of "Shareholders."
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied in
contracts among California residents entered into and performed entirely within
California.
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<PAGE> 77
(e) Attorneys' Fees. In the event of any dispute involving the
terms hereof, the prevailing parties shall be entitled to collect legal fees and
expenses from the other party to the dispute. (f) Further Assurances. Each party
agrees to act in accordance herewith and not to take any action which is
designed to avoid the intention hereof.
(g) Ownership. Each Shareholder represents and warrants that he
or she is the sole legal and beneficial owner of the shares of Common Stock
subject to this Agreement and that no other person has any interest (other than
a community property interest) in such shares.
(h) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
(i) Aggregation of Stock. For the purposes of determining the
availability of any rights under this Agreement, the holdings of transferees and
assignees of an individual or a partnership who are spouses, ancestors, lineal
descendants or siblings of such individual or partners or retired partners of
such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Common Stock by gift, will or
intestate succession) shall be aggregated together with the individual or
partnership, as the case may be, for the purpose of exercising any rights or
taking any action under this Agreement.
(j) 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.
(k) Separate Counsel. Each Shareholder acknowledges and agrees
that such Shareholders have been provided the opportunity and encouraged to
consult with counsel of such Shareholders' own choosing with respect to this
Agreement and that Brobeck, Phleger & Harrison solely represents the interests
of the Company.
(l) Legend. Each certificate representing shares of Stock now or
hereafter owned by each Shareholder shall be endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN AGREEMENT AMONG THE SHAREHOLDER, THE
CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION.
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<PAGE> 78
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
<TABLE>
<S> <C>
Discovery Partners International, Inc., a
California corporation (formerly known as IRORI)
By:
---------------------------------
Riccardo Pigliucci, Chief Executive Officer
Address: 9640 Towne Center Drive
San Diego, CA 92121
SHAREHOLDERS:
------------------------------------
Dr. Michael Nova
Address: Scripps Research Institute BCC405
10550 North Torrey Pines Road
La Jolla, CA 92037
------------------------------------
K.C. Nicolau
Address: Scripps Research Institute BCC405
10550 North Torrey Pines Road
La Jolla, CA 920
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By:
---------------------------
General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT]
<PAGE> 79
<TABLE>
<S> <C>
INVESTORS:
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By:
---------------------------
General Partner, Andrew E. Senyei
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By:
---------------------------
General Partner, Andrew E. Senyei
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT]
<PAGE> 80
<TABLE>
<S> <C>
MAYFIELD VIII, a California Limited Partnership
By: Mayfield VIII Management, L.L.C., a
Delaware limited liability company, its
General Partner
By:
---------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II, a California
Limited Partnership
By:
---------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
CROSSPOINT VENTURE PARTNERS-1996
By:
---------------------------------
Don Milder, General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
CROSSPOINT VENTURE PARTNERS LS-1997
By:
---------------------------------
Don Milder, General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
</TABLE>
[SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT]
<PAGE> 81
<TABLE>
<S> <C>
AGILENT TECHNOLOGIES, INC., f/k/a
Hewlett-Packard Company
By:
---------------------------------
Its:
---------------------------------
Address: Mail Stop 20 BQ
3000 Hanover Street
Palo Alto, CA 94304
Attn: Craig Norlin, Legal Counsel
BRISTOL-MYERS SQUIBB COMPANY
By:
---------------------------------
Address: P.O. Box 4000
Route 206 & Province Line Road
Princeton, NJ 08543-4000
Attn: Vice President and Senior Counsel,
Pharmaceutical Research Institute and
Worldwide Strategic Business
Development
AVENTIS, f/k/a Rhone-Poulenc Rorer
International Holdings, Inc.
By:
---------------------------------
Address: 3 Park Avenue
New York, New York 10016
Attn: Norma Hunt-Allen, Investor Relations
PACIFIC VENTURE GROUP II, L.P.
By:
---------------------------------
Address: 15635 Alton Parkway
Suite 230 Irvine, CA 92618
</TABLE>
[SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT]
<PAGE> 82
<TABLE>
<S> <C>
BAYSTAR CAPITAL, LLP, a Delaware Limited
Partnership
By: BayStar Capital Management, LLC,
Its General Partner
By:
---------------------------------
Steve Lamar, Vice President
BAYSTAR INTERNATIONAL LTD, a British Virgin
Islands Corporation
By: BayStar International Management, LLC,
Its General Partner
By:
---------------------------------
Steve Lamar, Vice President
--------------------------------------
Hayden J. Trubitt
</TABLE>
[SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT]
<PAGE> 83
EXHIBIT A
Shareholders
<TABLE>
<CAPTION>
Number of Common
Shareholder Name Shares Owned
- ---------------- ------------
<S> <C>
Dr. Michael Nova 300,000
K. C. Nicolaou 300,000
Enterprise Partners III, L.P. 119,600
Enterprise Partners III, Associates 10,400
-------
TOTAL: 730,000
</TABLE>
A-1
<PAGE> 84
EXHIBIT B
Intentionally Omitted.
B-1
<PAGE> 85
EXHIBIT C
Investors
Series A Investors
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Mayfield VIII
Mayfield Associates Fund II
Series B Investors
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Mayfield VIII
Mayfield Associates Fund II
Crosspoint Venture Partners-1996
Series C Investors
Agilent Technologies, Inc. (f/k/a/ Hewlett-Packard Company)
Series D Investors
Bristol-Myers Squibb Company
Crosspoint Venture Partners-1997
Aventis (f/k/a/ Rhone-Poulenc Rorer, Inc.)
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Mayfield VIII
Mayfield Associates Fund II
Series E Investors
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Mayfield VIII
Mayfield Associates Fund II
Crosspoint Venture Partners LS-1997
Pacific Venture Group II, L.P.
BayStar Capital, L.P.
BayStar International Ltd.
Hayden J. Trubitt
C-1
<PAGE> 86
EXHIBIT D
Intentionally Omitted.
D-1
<PAGE> 87
EXHIBIT E
Intentionally Omitted.
E-1
<PAGE> 88
EXHIBIT F
Intentionally Omitted.
F-1
<PAGE> 89
EXHIBIT D
SCHEDULE OF COMMON HOLDERS
<TABLE>
<CAPTION>
NAME SHARES
- ---- ------
<S> <C>
Linda Anderson 675
Patricia Bashaw 3,000
Cheryl Bogowitz 1,562
Richard Brown 58,500
Alegria Carrasco 1,200
Roger Cornell 6,200
Tony Czarnik 14,125
Gary David 7,000
Enterprise Partners III Assoc. 10,400
Enterprise Partners III, L.P. 119,600
Scott Estrada 436
Jack Fitzpatrick 75,000
Lawrence Gray 1,500
Nicholas Hansen 8,098
Dieter Hoehn 25,000
David Hurst 1,093
Vicki Joy-Powell 833
Kanchi Karunaratne 14,875
Charlotte Kaufman 675
Kerry Kessler 885
Sue Knowles 5,081
Rongshi Li 8,825
Wenbao Li 4,072
John Lillig 85,000
Mathew Lillig 200
Brenda Magill 10,000
Peter McDonnell 3,200
Aubrey Mendonca 9,124
David Mir 837
Grace Nakayama 6,166
K.C. Nicolaou 300,000
Alex Nicolaou 200
Vicky Nielson 400
Michael Nova 300,000
Tina Nova 3,300
Elizabeth O'Farrell 2,465
Donald O'Neil 3,380
Zahra Parandoosh 45,225
Janise Petrey 400
Riccardo Pigliucci 600,000
</TABLE>
Exhibit D-1
<PAGE> 90
<TABLE>
<S> <C>
Hanan Potash 2,500
Barry Prom 8,500
Robert Prom, Jr. 100
Mark Rubin 2,400
Yozo Satado 2,500
Walter Segl 18,000
Shuhao Shi 6,868
Maria Spiegel 250
Emanuel Theodorakis 2,200
Janet Vedral 1,077
Chanfeng Zhao 6,141
---------
Total: 1,789,068
=========
</TABLE>
Exhibit D-2
<PAGE> 91
EXHIBIT E
FORM OF LEGAL OPINION
Exhibit E-1
<PAGE> 92
April 7, 2000
To the Investors Listed on the
Schedule of Investors to the
Discovery Partners International, Inc. Series E
Preferred Stock Purchase Agreement
dated April 7, 2000
Ladies and Gentlemen:
We have acted as counsel for Discovery Partners International, Inc. a
California corporation (the "Company"), in connection with the issuance and sale
of shares of its Series E Preferred Stock pursuant to the Discovery Partners
International, Inc. Series E Preferred Stock Purchase Agreement dated April 7,
2000 (the "Stock Purchase Agreement") among the Company and you. This opinion
letter is being rendered to you pursuant to Section 5(f) of the Stock Purchase
Agreement in connection with the Closing of the sale of the Series E Preferred
Stock. Capitalized terms not otherwise defined in this opinion letter have the
meanings given them in the Stock Purchase Agreement.
In connection with the opinions expressed herein, we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Stock
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion letter the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of the documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
certified, facsimile or photostatic copies, and the authenticity of the
originals of such copies.
In rendering this opinion letter we have also assumed: (A) that the
Stock Purchase Agreement, Amended and Restated Investors' Rights Agreement,
Amended and Restated Shareholders' Agreement and Amendment No. 2 to Voting
Agreement (collectively, the "Transaction Agreements") have been duly and
validly executed and delivered by you or on your behalf, that each of you has
the power to enter into and perform all your obligations thereunder, and that
the Transaction Agreements constitute valid, legal, binding and enforceable
obligations upon you; (B) that the representations and warranties made in the
Stock Purchase Agreement by you are true and correct; (C) that any wire
transfers, drafts or checks tendered by you will be honored; (D) that you have
filed any required state franchise, income or similar tax returns and have paid
any required state franchise, income or similar taxes; and (E) if you are a
small business investment company subject to the Small Business Investment Act
of 1958, as amended, that you have complied with the provisions of such Act and
the regulations promulgated thereunder (the "SBIA Laws").
<PAGE> 93
April 7, 2000
Page 2
As used in this opinion letter, the expression "we are not aware" or the
phrase "to our knowledge," or any similar expression or phrase with respect to
our knowledge of matters of fact, means as to matters of fact that, based on the
actual knowledge of individual attorneys within the firm principally involved in
handling current matters for the Company (and not including any constructive or
imputed notice of any information), and after an examination of documents
referred to herein and after inquiries of certain officers of the Company, no
facts have been disclosed to us that have caused us to conclude that the
opinions expressed are factually incorrect; but beyond that we have made no
factual investigation for the purposes of rendering this opinion letter.
Specifically, but without limitation, we have not searched the dockets of any
courts and we have made no inquiries of securities holders or employees of the
Company, other than such officers.
This opinion letter relates solely to the laws of the State of
California and the federal law of the United States and we express no opinion
with respect to the effect or application of any other laws. Special rulings of
authorities administering such laws or opinions of other counsel have not been
sought or obtained.
Based upon our examination of and reliance upon the foregoing and
subject to the limitations, exceptions, qualifications and assumptions set forth
below and except as set forth in the Stock Purchase Agreement or the Schedule of
Exceptions thereto, we are of the opinion that as of the date hereof:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California, and the Company has
the requisite corporate power and authority to own its properties and to conduct
its business as, to our knowledge, it is presently conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform the Transaction Agreements. Each of the Transaction
Agreements has been duly and validly authorized by the Company, duly executed
and delivered by an authorized officer of the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable by you against the
Company in accordance with its terms.
3. The capitalization of the Company is as follows:
(a) Preferred Stock. The Company has 9,033,333 authorized shares
of Preferred Stock (the "Preferred Stock"), of which (i) 2,500,000 shares have
been designated Series A Preferred Stock, to our knowledge 2,000,000 shares of
which are currently issued and outstanding, (ii) 2,000,000 shares have been
designated Series B Preferred Stock, to our knowledge all of which are currently
issued and outstanding, (iii) 333,333 shares have been designated Series C
Preferred Stock, to our knowledge all of which are currently issued and
outstanding, (iv) 2,500,000 shares have been designated Series D Preferred
Stock, to our knowledge 2,228,945 shares of which are currently issued and
outstanding, and (v) 1,700,000 shares have been designated Series E Preferred
Stock and up to 1,465,261 of which may be purchased pursuant to the Stock
Purchase Agreement. Such 2,000,000 shares of outstanding Series A Preferred
Stock have been duly authorized and validly issued, are nonassessable and, to
<PAGE> 94
April 7, 2000
Page 3
our knowledge, are fully paid. Such 2,000,000 shares of outstanding Series B
Preferred Stock have been duly authorized and validly issued, are nonassessable
and, to our knowledge, are fully paid. Such 333,333 shares of outstanding Series
C Preferred Stock have been duly authorized and validly issued, are
nonassessable and, to our knowledge, are fully paid. Such 2,228,945 shares of
outstanding Series D Preferred Stock have been duly authorized and validly
issued, are nonassessable and, to our knowledge, are fully paid. The shares of
Series E Preferred Stock to be purchased at the Closing have been duly
authorized and, upon purchase at the Closing pursuant to the terms of the Stock
Purchase Agreement, will be validly issued, nonassessable and fully paid. The
respective rights, privileges, restrictions and preferences of the Series A,
Series B, Series C, Series D and Series E Preferred Stock are as stated in the
Company's Restated Articles of Incorporation attached as Exhibit A to the Stock
Purchase Agreement.
(b) Common Stock. The Company has 12,000,000 authorized shares
of Common Stock (the "Common Stock"), to our knowledge 1,789,068 shares of which
are currently issued and outstanding. Such 1,789,068 shares of outstanding
Common Stock have been duly authorized and validly issued, are nonassessable,
and, to our knowledge, are fully paid.
(c) The Common Stock issuable upon conversion of the Series E
Preferred Stock to be purchased at the Closing has been duly and validly
reserved for issuance and, when and if issued upon such conversion in accordance
with the Company's Restated Articles of Incorporation, will be validly issued,
fully paid and nonassessable.
(d) There are no statutory preemptive rights nor, to our
knowledge, are there any options, warrants, conversion privileges or other
rights (or agreements for any such rights) outstanding to purchase or otherwise
obtain from the Company any of the Company's equity securities, except for (i)
the conversion privileges of the Series A, Series B, Series C and Series D
Preferred Stock, (ii) the conversion privileges of the Series E Preferred Stock,
(iii) warrants issued on September 10, 1996 to purchase 192,355 shares of Series
A Preferred Stock, (iv) warrants issued as of November 5, 1996 to purchase
32,624 shares of Common Stock, (v) warrants to purchase 33,051 shares of Series
A Preferred Stock, (vi) a warrant to purchase 150,000 shares of Common Stock,
(vii) warrants to purchase 48,904 shares of Common Stock, (viii) warrants to
purchase 11,588 shares of Common Stock, (ix) warrants to purchase 234,739 shares
of Series E Preferred Stock, (x) 1,080,029 options to purchase Common Stock
granted under the Company's 1995 Stock Option/Stock Issuance Plan, and (xi) the
right of first offer as set forth in Section 2.4 of the Amended and Restated
Investors' Rights Agreement.
4. Other than in connection with any securities laws (with respect to
which we direct you to paragraph 6 below), the Company's execution and delivery
of, and its performance and compliance as of the date hereof with the terms of,
the Transaction Agreements do not violate any provision of any federal or
California law, rule or regulation applicable to the Company or any provision of
the Company's Restated Articles of Incorporation or Bylaws and do not conflict
with or constitute a default under the provisions of any judgment, writ, decree
or order specifically identified in the Schedule of Exceptions or the material
provisions of any of the material agreements specifically identified in the
Schedule of Exceptions.
<PAGE> 95
April 7, 2000
Page 4
5. Other than in connection with any securities laws (with respect to
which we direct you to paragraph 6 below) all consents, approvals, permits,
orders or authorizations of, and all qualifications by and registrations with,
any federal or California state governmental authority on the part of the
Company required in connection with the execution and delivery of the Stock
Purchase Agreement and consummation at the Closing of the transactions
contemplated by the Stock Purchase Agreement have been obtained, and are
effective, and we are not aware of any proceedings, or written threat of any
proceedings, that question the validity thereof.
6. Based in part upon the representations of you in the Stock Purchase
Agreement, the offer and sale of the Series E Preferred Stock to you pursuant to
the terms of the Stock Purchase Agreement are exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, and from
the qualification requirements of the California Corporate Securities Law of
1968, as amended, and, under such securities laws as they presently exist, the
issuance of Common Stock to you upon conversion of the Series E Preferred Stock
would also be exempt from such registration and qualification requirements.
7. We are not aware that there is any action, proceeding or governmental
investigation pending, or overtly threatened in writing, against the Company
which questions the validity of the Transaction Agreements or the right of the
Company to enter into the Transaction Agreements.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
(A) The legality, validity, binding nature and enforceability of the
Company's obligations under the Transaction Agreements may be subject to or
limited by (1) bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent transfer and other similar laws affecting the rights of creditors
generally; (2) general principles of equity (whether relief is sought in a
proceeding at law or in equity), including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and the discretion of
any court of competent jurisdiction in awarding specific performance or
injunctive relief and other equitable remedies; and (3) without limiting the
generality of the foregoing, (a) principles requiring the consideration of the
impracticability or impossibility of performance of the Company's obligations at
the time of the attempted enforcement of such obligations, and (b) the effect of
California court decisions and statutes which indicate that provisions of the
Transaction Agreements which permit any of you to take action or make
determinations may be subject to a requirement that such action be taken or such
determinations be made on a reasonable basis in good faith or that it be shown
that such action is reasonably necessary for your protection.
(B) We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
(C) We express no opinion concerning the past, present or future fair
market value of any securities.
<PAGE> 96
April 7, 2000
Page 5
(D) We express no opinion as to the enforceability under certain
circumstances of any provisions indemnifying a party against, or requiring
contributions toward, that party's liability for its own wrongful or negligent
acts, or where indemnification or contribution is contrary to public policy or
prohibited by law. In this regard, we advise you that in the opinion of the
Securities and Exchange Commission, indemnification of directors, officers and
controlling persons of an issuer against liabilities arising under the
Securities Act of 1933, as amended, is against public policy and is therefore
unenforceable.
(E) We express no opinion as to the enforceability under certain
circumstances of any provisions prohibiting waivers of any terms of the
Transaction Agreements other than in writing, or prohibiting oral modifications
thereof or modification by course of dealing. In addition, our opinions are
subject to the effect of judicial decisions which may permit the introduction of
extrinsic evidence to interpret the terms of written contracts.
(F) We express no opinion as to the effect of Section 1670.5 of the
California Civil Code or any other California law, federal law or equitable
principle which provides that a court may refuse to enforce, or may limit the
application of, a contract or any clause thereof which the court finds to have
been unconscionable at the time it was made or contrary to public policy.
(G) We express no opinion as to your compliance with any Federal or
state law relating to your legal or regulatory status or the nature of your
business.
(H) We express no opinion as to the compliance of the Company or the
sale of the Series E Preferred Stock to the Investors with the provisions of the
SBIA Laws, except to the extent that such compliance relates to the sale of
Series E Preferred Stock to Investors which are expressly identified in the
Stock Purchase Agreement as being small business investment companies.
(I) We express no opinion as to the effect of subsequent issuances of
securities of the Company, to the extent that notwithstanding its reservation of
shares the Company may issue so many shares of Common Stock that there are not
enough remaining authorized but unissued shares of Common Stock for the
conversion of the Series E Preferred Stock (or may issue securities which by
antidilution adjustment so reduce the Conversion Price (as such term is defined
in the Company's Restated Articles of Incorporation) of the Series E Preferred
Stock and/or other Company derivative securities that the outstanding shares of
the Series E Preferred Stock become convertible for more shares of Common Stock
than remain authorized but unissued).
(J) We express no opinion as to:
(1) The effect of Chapter Five, Chapter Thirteen and Chapter
Eighteen of Division One of the California Corporations Code or any other
California law, federal law or equitable principles restricting in certain
circumstances distributions by a corporation to its shareholders, relating to
dissenters' rights or relating to involuntary dissolution;
<PAGE> 97
April 7, 2000
Page 6
(2) The enforceability under certain circumstances of provisions
expressly or by implication waiving broadly or vaguely stated rights, unknown
future rights, or defenses to obligations or rights granted by law, when such
waivers are against public policy or prohibited by law;
(3) The enforceability under certain circumstances of provisions
to the effect that rights or remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to or with any other right
or remedy, that election of a particular remedy or remedies does not preclude
recourse to one or more remedies, that rights or remedies may be exercised
without notice, or that failure to exercise or delay in exercising rights or
remedies will not operate as a waiver of any such right or remedy; and
(4) The effect of any California law, federal law or equitable
principles which limit the amount of attorneys' fees that can be recovered under
certain circumstances.
This opinion letter is rendered as of the date first written above
solely for your benefit in connection with the Stock Purchase Agreement and may
not be delivered to, quoted or relied upon by any person other than you, or for
any other purpose, without our prior written consent. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company. We
assume no obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
<PAGE> 98
April 7, 2000
Page 7
If you are a lawyer with us, this opinion letter is not addressed to you
(even if you are an Investor) and you are not entitled to rely on it.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 99
EXHIBIT F
AMENDMENT NO. 2 TO VOTING AGREEMENT
Exhibit F-1
<PAGE> 100
AMENDMENT NO. 2 TO VOTING AGREEMENT
THIS AMENDMENT NO. 2 TO VOTING AGREEMENT ("Amendment") is made as of
April 7, 2000, by and among Discovery Partners International, Inc., a California
corporation and the successor-in-interest to IRORI (the "Company" ), Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P. (together,
"Enterprise"), Mayfield VIII, Mayfield Associates Fund II (together,
"Mayfield"), Crosspoint Venture Partners-1996, Crosspoint Venture Partners
LS-1997 (together, "Crosspoint"), Agilent Technologies, Inc. (formerly
Hewlett-Packard Company) ("Agilent"), Pacific Venture Group II, L.P.
("Pacific"), BayStar Capital, L.P. and BayStar International Ltd. (together'
BayStar") and Hayden J. Trubitt ("Trubitt") with reference to the Voting
Agreement dated as of November 5, 1996 among the Company, Enterprise, Mayfield
and Crosspoint Venture Partners-1996 (as amended and restated by Amendment No. 1
to Voting Agreement dated October 31, 1997, the "Voting Agreement"). Enterprise,
Mayfield, Crosspoint, Agilent and Pacific are collectively referred to herein as
the "Investors."
A. Enterprise, Mayfield, Crosspoint Venture Partners LS-1997, Pacific,
BayStar and Trubitt (together, the "Series E Investors") desire to purchase
shares of the Company's Series E Preferred Stock (the "Series E Shares"), and
the Company desires to sell such securities to the Series E Investors;
B. Pursuant to the Company's Restated Articles of Incorporation, as
amended, the holders of the Company's Preferred Stock ("Preferred Stock") are
entitled to elect five (5) directors of the Company (the "Preferred Directors");
and
C. This Amendment is entered into as an inducement to and in
consideration of that certain Series E Preferred Stock Purchase Agreement dated
as of the date hereof by and between the Company and the Series E Investors (the
"Series E Purchase Agreement").
NOW, THEREFORE, IT IS HEREBY AGREED THAT THE VOTING AGREEMENT IS AMENDED
AND RESTATED TO READ IN FULL AS FOLLOWS:
1. Agreement to Vote for Enterprise Nominee.
a. During the term of this Voting Agreement, each of the
Investors agrees to vote all of its shares of the Company's Series A Preferred
Stock ("Series A Shares"), Series B Preferred Stock ("Series B Shares"), Series
C Preferred Stock ("Series C Shares"), Series D Preferred Stock ("Series D
Shares") and Series E Shares now or hereafter owned by it to elect one (1)
nominee of Enterprise (the "Enterprise Nominee") as a Preferred Director.
b. Prior to each election of directors of the Company,
Enterprise shall designate the Enterprise Nominee in writing to the Company. The
Company shall promptly notify each of the Investors of Enterprise's choice of
such nominee. Any vacancy occurring
<PAGE> 101
because of the death, resignation, removal or disqualification of the Enterprise
Nominee shall be filled according to this Section 1.
2. Agreement to Vote for Mayfield Nominee.
a. During the term of this Voting Agreement, each of the
Investors agrees to vote all of its Series A Shares, Series B Shares, Series C
Shares, Series D Shares and Series E Shares now or hereafter owned by it to
elect one (1) nominee of Mayfield (the "Mayfield Nominee") as a Preferred
Director.
b. Prior to each election of directors of the Company, Mayfield
shall designate the Mayfield Nominee in writing to the Company. The Company
shall promptly notify each of the Investors of Mayfield's choice of such
nominee. Any vacancy occurring because of the death, resignation, removal or
disqualification of the Mayfield Nominee shall be filled according to this
Section 2.
3. Agreement to Vote for Crosspoint Nominee.
a. During the term of this Voting Agreement, each of the
Investors agrees to vote all of its Series A Shares, Series B Shares, Series C
Shares, Series D Shares and Series E Shares now or hereafter owned by it to
elect one (1) nominee of Crosspoint (the "Crosspoint Nominee") as a Preferred
Director.
b. Prior to each election of directors of the Company,
Crosspoint shall designate the Crosspoint Nominee in writing to the Company. The
Company shall promptly notify each of the Investors of Crosspoint's choice of
such nominee. Any vacancy occurring because of the death, resignation, removal
or disqualification of the Crosspoint Nominee shall be filled according to this
Section 3.
4. Covenants of the Investors and the Company. The Company and the
Investors agree to use their reasonable best efforts to ensure that the rights
given to the Investors hereunder are effective and that the Investors shall
enjoy the benefits hereof. Such reasonable best efforts shall include, without
limitation, the use of the Company's and the Investors' reasonable best efforts
to cause the nomination of the Enterprise Nominee, the Mayfield Nominee, and the
Crosspoint Nominee at each election of the Board of Directors. Neither the
Company nor any of the Investors shall, by any voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be performed
hereunder by the Company or the Investors, respectively, but shall at all times
in good faith assist in the carrying out of all of the provisions of this Voting
Agreement and shall use their reasonable best efforts to protect the rights of
the Investors hereunder against impairment.
5. Successors and Assigns.
a. The Investors' rights under this Agreement are not assignable
without the prior written consent of the Company and the holders of a majority
of the Preferred Stock then
2
<PAGE> 102
held by the Investors (the "Majority Investors"), which consent may be withheld
for any reason whatsoever.
b. The burdens of this Voting Agreement shall be binding upon
the successors and assigns to whom the Investors transfer any of their
respective Series A Shares, Series B Shares, Series C Shares, Series D Shares
and/or Series E Shares. The Company shall not permit the transfer of any Series
A Shares, Series B Shares, Series C Shares, Series D Shares and/or Series E
Shares on its books or issue a new certificate representing any Series A Shares,
Series B Shares, Series C Shares, Series D Shares and/or Series E Shares unless
and until the person to whom such security is to be transferred shall have
executed a written agreement, reasonably satisfactory in form and substance to
the Majority Investors and the Company, pursuant to which such person becomes a
party to this Voting Agreement and agrees to be bound by all the burdens hereof
as if such person was an Investor hereunder.
c. The provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the Company.
6. Legends. Each certificate representing any Series A Shares, Series B
Shares, Series C Shares, Series D Shares or Series E Shares held by the
Investors shall be endorsed by the Company with the following legend:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT (A
COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER), AND BY ACCEPTING
ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST
SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
BURDENS OF SAID VOTING AGREEMENT.
7. Termination. This Voting Agreement shall terminate upon the earlier
of (i) the consummation of the Company's initial public offering on a firm
underwriting basis, (ii) the closing of a consolidation or merger of the Company
with or into any other corporation or corporations, or a sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of or
(iii) as to each Investor, that date when such Investor (a) holds less than
750,000 Series B Shares and/or Series A Shares, (b) holds less than 100,000
Series C Shares or Series D Shares, and (c) holds less than 100,000 Series E
Shares.
8. Amendments and Waivers. Any term hereof may be amended and the
observance of any term hereof 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 Majority Investors or their successors and
permitted assigns. Any amendment or waiver so effected shall be binding upon the
Company and all of the Investors, their successors and assigns.
3
<PAGE> 103
9. Severability. Whenever possible, each provision of this Voting
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Voting Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Voting Agreement.
10. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California, without regard to the conflict of
laws provisions thereof.
11. Notices. All notices, requests and other communications to the
Company or any of the Investors hereunder shall be in writing (including
telecopy or similar electronic transmissions), shall refer specifically to this
Voting Agreement and shall be personally delivered or sent by telecopy or other
electronic facsimile transmission, overnight delivery with a nationally
recognized overnight delivery service or by registered or certified mail, return
receipt requested, postage prepaid, in each case to the respective address
specified below (or such other address as may be specified in writing to the
other parties hereto):
a. If to the Company, to:
DISCOVERY PARTNERS INTERNATIONAL, INC.
9640 Towne Center Drive
San Diego, CA 92121
Attention: Chief Executive Officer
Fax No.: (858) 455-8088
b. If to Enterprise, to:
ENTERPRISE PARTNERS
1205 Prospect Street, Suite 500
Attention: General Partner
Fax No.: (____) ____-_____
c. If to Mayfield, to:
MAYFIELD ASSOCIATES
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: General Partner
Fax No.: (____) ____-_____
d. If to Crosspoint, to:
4
<PAGE> 104
CROSSPOINT VENTURES PARTNERS
18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
Attention: General Partner
Fax No.: (714) 852-9804
e. If to Agilent, to:
AGILENT TECHNOLOGIES, INC.
3000 Hanover Street
Palo Alto, CA 94304
Attention: Director, Corporate Development
Fax No.: (650) 852-8432
With a copy to:
AGILENT TECHNOLOGIES, INC.
3000 Hanover Street
Palo Alto, CA 94304
Attention: General Counsel
Fax No.: (650) 852-8019
f. If to Pacific, to:
PACIFIC VENTURE GROUP
15635 Alton Parkway, Suite 230
Irvine, CA 92618
Attention: _______________
Fax No.: (____) ____-_____
g. If to BayStar, to:
BAYSTAR CAPITAL
425 Market Street, 22nd Floor
San Francisco, CA 94105
Attention: Sherrill Lybrook, Principal
Fax No.: (415) 512-6472
h. If to Trubitt, to:
HAYDEN J. TRUBITT
Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Fax No.: (858)-720-2555
5
<PAGE> 105
Any notice or communication given in conformity with this Section 11 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or electronic transmission, one (1) day after deposit with a nationally
recognized overnight delivery service and three (3) days after mailing, if
mailed.
12. Equitable Remedies. The Company and the Investors acknowledge and
agree that the legal remedies available to the Investors in the event any party
violates the covenants and agreements made in this Voting Agreement would be
inadequate and that the Investors shall be entitled, without posting any bond or
other security, to temporary, preliminary, and permanent injunctive relief,
specific performance and other equitable remedies in the event of such a
violation, in addition to any other remedies which the Investors may have at law
or in equity.
13. Counterparts. This Voting Agreement may be executed in any number
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 106
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 to
Voting Agreement as of the date first written above.
DISCOVERY PARTNERS, INC., a California corporation
By:
--------------------------------------------
Riccardo Pigliucci, Chief Executive Officer
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P., Its General Partner
By:
--------------------------------------------
General Partner
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P., Its General Partner
By:
--------------------------------------------
General Partner
MAYFIELD VIII, a California Limited Partnership
By: MAYFIELD VIII MANAGEMENT, L.L.C., a Delaware Limited Liability Company,
its General Partner
By:
--------------------------------------------
Title:
-----------------------------------------
MAYFIELD ASSOCIATES FUND II, a California Limited Partnership
7
<PAGE> 107
By:
--------------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS-1996
By:
--------------------------------------------
Don Milder, General Partner
CROSSPOINT VENTURE PARTNERS LS-1997
By:
--------------------------------------------
Don Milder, General Partner
AGILENT TECHNOLOGIES, INC. (f/k/a Hewlett-Packard Company)
By:
--------------------------------------------
Richard Kniss, Vice President and General Manager, Chemical Analysis Group
PACIFIC VENTURE GROUP II, L.P.
By:
--------------------------------------------
Title:
-----------------------------------------
BAYSTAR CAPITAL, L.P., a Delaware limited partnership
By: BayStar Capital Management LLC,
Its General Partner
By:
--------------------------------------------
8
<PAGE> 108
Steve Lamar, Vice President
BAYSTAR INTERNATIONAL LTD., a British Virgin Islands Corporation
By: BayStar International Management, LLC,
Its General Partner
By:
--------------------------------------------
Steve Lamar, Vice President
- -----------------------------------------------
Hayden J. Trubitt
9
<PAGE> 109
SCHEDULE OF EXCEPTIONS
<PAGE> 110
DISCOVERY PARTNERS INTERNATIONAL, INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions is made and given pursuant to Section 2 of
the Series E Preferred Stock Purchase Agreement dated April 7, 2000 (the
"Agreement"). The section numbers in this Schedule of Exceptions correspond to
the section numbers in the Agreement; however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number under the Agreement where such disclosure would
otherwise be appropriate. Where the terms of a contract or other disclosure item
have been summarized or described in this Schedule of Exceptions, such summary
or description does not purport to be a complete statement of the material terms
of such contract or item. Any terms defined in the Agreement shall have the same
meaning when used in this Schedule of Exceptions as when used in the Agreement
unless the context otherwise requires.
SECTION 2.4 GOVERNMENT CONSENTS
Blue Sky filings may be required.
SECTION 2.6 SUBSIDIARIES
Discovery Partners International, Inc. (DPI) owns 100% of the equity of
IRORI Europe, Ltd., a subsidiary created in March 1997. IRORI Europe, Ltd. is
located in the United Kingdom, and is currently responsible for DPI's European
sales and marketing activities.
DPI owns 100% of the equity of Discovery Technologies, Ltd. (DTL),
located near Basel, Switzerland. DTL, acquired by DPI in 1999, provides High
Throughput Screening (HTS) services to pharmaceutical, agricultural and
biotechnology companies.
SECTION 2.7 CONTRACTS AND OTHER COMMITMENTS
Facility Leases
DPI currently leases 9,828 sq. ft. of research and development,
manufacturing, and administrative space in La Jolla, CA, under a lease which
extends through September 30, 2000. DPI subleases the space to a tenant who pays
DPI monthly rent in excess of DPI's monthly payment. DPI leases an additional
34,612 sq. ft. facility of research and development, manufacturing, and
administrative space, at 9640 Towne Centre Drive, San Diego, CA, which DPI
occupies. This second lease extends through August 31, 2006. DPI currently pays
$50,187 per month in base rent, plus the building's monthly operating expenses.
<PAGE> 111
IRORI Europe, Ltd. entered into a five year lease of 21,48 sq. ft. of
office space on December 22, 1997, at a rental rate of 15,000 British Pounds per
year. The office is located in Cheshire, England, just outside of Manchester.
DTL currently leases 1,330 square meters of office and laboratory space,
in Allschwil, Switzerland, at a rate of 9,421 Swiss Francs per month. The lease
terminates in 2008. The company recently exercised its option to expand the
leased space by an additional 650 square meters, beginning in June, 2000.
Financing
As of March 31, 2000, DPI had a total equipment lease/finance liability
of approximately $780,000 in the United States, and US$375,000 in Switzerland.
DTL has a 3 million Swiss Francs (US$ 1.8 million) line of credit with
Basler Kantonalbank.
DTL has a loan of 2.6 million Swiss Francs (US$ 1.6 million) from
Novartis, which is guaranteed by Discovery Partners International, Inc.
Technology License/Assignment
Hewlett-Packard Alliance Agreement. On October 31, 1997, DPI entered
into an agreement with Hewlett-Packard under which Hewlett-Packard received a
license to certain DPI technology for use in specified fields. The agreement
requires Hewlett-Packard to expend specified resources in developing and
promoting Hewlett-Packard products that incorporate DPI's technology. The
agreement also contains provisions regarding the co-development and marketing of
products in the areas of chemical synthesis and analysis.
Trega Biosciences, Inc. Sublicense Agreement. On May 1, 1998, DPI
entered into a non-exclusive sublicense agreement with Trega Biosciences, Inc.
under which the Company has certain rights to make, have made, use, import,
market, have marketed, sell and have sold products which embody the technology
contained in U.S. Patent 4,631,211 . The terms of the license require DPI to pay
Trega a license fee of *** in 1998 and *** in 1999, plus a royalty of 10% of net
sales of licensed products (subject to a minimum of *** per year and a maximum
of *** per year).
Ontogen Patents Assignment Agreement On December 17, 1998 DPI entered
into an agreement with Ontogen Corporation, under which Ontogen assigned to DPI
all rights, title and interest in U. S. Patent 5,770,455 and U. S. Patent
Application Serial Number 383,766 in exchange for *** .
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE> 112
Product/Service Contracts
Bristol Myers Squibb Strategic Alliance Agreement. On May 22, 1998, DPI
entered into a two year agreement to develop and deliver to BMS a NanoKan
system, designed to enable the low-cost synthesis of up to one million discrete
chemical compounds per year. BMS purchased *** million of DPI Series D Preferred
Stock, and agreed to pay *** million for the NanoKan system and 500,000
disposable nanokan reactors.
Aventis Strategic Alliance Agreement. On June 15, 1998, DPI entered into
a two year agreement to develop and deliver to Aventis (formerly Rhone Poulenc
Rorer) a NanoKan system, designed to enable the low-cost synthesis of up to one
million discrete chemical compounds per year. Aventis purchased *** million of
DPI Series D Preferred Stock, and agreed to pay *** million for the NanoKan
system and 1.5 million disposable nanokan reactors.
ChemRx Contracts
The ChemRx business unit has the following active chemistry services contracts:
<TABLE>
<CAPTION>
<S> <C> <C>
Dupont Pharmaceuticals Company - 5/25/99; $ 336,000
Hoffman La Roche - 7/26/99; 362,500
Monsanto Searle - 7/29/99; 62,500
Pharmacia & Upjohn - 8/2/99; 493,200
Kirin Brewery Co Ltd - 8/2/99; 435,000
R. W. Johnson Pharmaceutical Research - 9/15/99; 290,000
Rohm and Haas Company - 9/17/99; 75,000
Dupont Crop Protection Products - 10/15/99; 300,000
AstraZeneca - 11/8/99; 40,000
Kirin Brewery Co Ltd - 12/6/99; 300,000
Dupont Pharmaceuticals Company - 12/10/99; 3,900,000
Abbot Laboratories- 12/16/99; 150,000
DGI BioTechnologies, LLC - 12/16/99 62,500
Hisamitsu Pharmaceutical Co., Inc. - 1/17/00 337,500
</TABLE>
DTL Contracts
The DTL business unit has the following active screening services contracts:
<TABLE>
<CAPTION>
<S> <C> <C>
Novartis Crop Protection, U.S. - 5/21/99; 1,080,000
MDL - 9/8/99; 168,000
Novartis Crop Protection, Switzerland - 12/23/99; 187,500
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE> 113
<TABLE>
<CAPTION>
<S> <C>
BiochemPharma - 11,1,99; 15,000
Japan Tobacco - 1/10/00; 271,659
Japan Tobacco - 1/10/00; 540,068
Japan Tobacco - 3/17/00; 3,000,000
</TABLE>
Employment Agreements
DPI has employment agreements with the following individuals:
Riccardo Pigliucci - 4/17/98 Henri Zinsli - 8/10/99 Helmut Kessman -
8/10/99 Bernard Schnurr - 8/10/99
Directorship Agreements
DPI has directorship agreements with the following outside members of the board
of directors:
Paul Anderson - 3/1/96
Dieter Hoehn - 12/15/96
Scientific Advisory Board Agreements
DPI has agreements with the following members of its Scientific Advisory Board:
K. C. Nicolaou - 4/27/95
Barry Honig - 12/15/98
Julius Rebek - 10/1/98
Colin Dollery - 5/17/99
Ricchard Labaudiniere - 7/9/99
Consultants and Contractors. DPI utilizes the services of a wide variety
of consultants and contractors, related to research and development, marketing,
and administrative tasks. All such service providers have signed consulting
agreements which contain provisions: (1) prohibiting the disclosure of DPI
confidential information, (2) assigning to DPI all intellectual property
produced as a result of the consulting engagement, and (3) allowing DPI to
terminate without cause with 30 days notice.
Other. Reference is made to the Investors' Rights Agreement,
Shareholders' Agreement, Voting Agreement, and the various stock purchase
agreements, warrants, and options under which DPI securities have been issued or
are issuable.
See also Section 2.21 Employees; Employee Compensation.
SECTION 2.8 RELATED-PARTY TRANSACTIONS
<PAGE> 114
DPI has an outstanding loan of $240,000 to Riccardo Pigliucci, the
proceeds of which were used to exercise company stock options. The full-recourse
loan is interest-bearing and is secured by 600,000 shares of DPI Common Stock.
Paul Anderson, a member of DPI's Board of Directors, is also a vice
president of Dupont Pharmaceuticals. Dupont Pharmaceuticals has purchased
product from DPI and has contracted with DPI several times for chemistry
services.
SECTION 2.17 FINANCIAL STATEMENTS
In March, 2000, DPI entered into a new equipment financing agreement
with GE Capital for a total of $747,151.
DPI has entered into standard indemnification provisions in several of
its agreements.
SECTION 2.18 CHANGES
(a) DPI issued a Promissory Note in the amount of $2,000,000 in March of
2000 payable to Crosspoint Venture Partners LS-1997. The Note accrues interest
equal to eight percent (8%) per annum. The Note plus accrued interest will be
converted into shares of Series E Preferred Stock on the Closing Date of this
transaction. In addition to the interest paid on the Note, warrants to purchase
76,931 shares of Series E Preferred Stock at a price of $5.00/share were granted
to the Note holder.
Revenues, costs and expenses subsequent to December 31, 1999 have been
consistent with management's expectation and have not adversely impacted the
Company.
SECTION 2.19 PATENTS AND TRADEMARKS
The Company has entered into a license agreement with Trega Biosciences,
Inc. under which the Company has certain rights to make, have made, use, import,
market, have marketed, sell and have sold products which embody the technology
contained in U.S. Patent 4,631,211.
On June 24, 1997, the U. S. Patent and Trademark Office allowed DPI's
trademark application on "ACCUTAG", subject to no opposition being filed within
30 days. Waters Technologies Corporation filed opposition within the 30 day
period, claiming prior use of the name. The issue is not yet resolved.
The Company acknowledges that future business plans may require
in-licensing various technologies critical to the success of those plans.
<PAGE> 115
The Company has granted a license to Hewlett-Packard to certain DPI
technology, more fully described in Section 2.7 Contracts and Other Commitments.
The Company has been notified by the United States Patent Office that
some of the claims contained in patent applications 08/473,660, 08/480,147,
08/484,486 and 09/098,122 may interfere with one or more claims of other
patents, and that ex parte prosecution has been suspended. The Company believes
that the potential interference(s) may be with certain claims contained in
either: a) a pending patent application filed by Ontogen Corporation on methods
and apparatus for synthesizing labeled combinatorial chemical libraries, which
the Company has acquired from Ontogen in an agreement more fully described in
Section 2.7 Contracts and Other Commitments; or b) patent #5,641,634 issued to
W. Mandecki. All of the claims in the Mandecki patent #5,641,634 relate to the
performance of assays, and if upheld by the U. S. Patent Office, would have no
impact on DPI's business as now conducted or as proposed to be conducted.
<PAGE> 116
CURRENT DPI PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
SERIAL NO.(PATENT NO.) FILING DATE COUNTRY OR REGION
- ---------------------- ----------- -----------------
<S> <C> <C> <C>
08/383,766 Allowed 950202 United States
08/428,662 5,741,462 950425 United States
08/473,660 Allowed 950607 United States
08/480,147 950607 United States
08/480,196 5,925,562 950607 United States
08/484,486 Allowed 950607 United States
08/480,438 5,770,455 950607 United States
08/484,504 5,751,629 950607 United States
08/538,387 5,874,214 951003 United States
08/567,746 6,025,129 951205 United States
08/633,410 Allowed 960610 United States
08/669,252 960624 United States
08/711,426 960905 United States
08/709,435 6,017,496 960906 United States
08/723,423 5,961,923 960930 United States
08/743,984 961028 United States
08/857,800 970122 United States
08/826,253 970327 United States
08/901,229 5,972,639 970724 United States
08/912,998 970811 United States
08/945,053 971021 United States
08/958,254 Allowed 971007 United States
09/010,951 980122 United States
09/051,022 980330 United States
09/098,122 980616 United States
09/261,781 990303 United States
09/479,119 000107 United States
59185/96 971117 Australia
2,216,645 970926 Canada
96916437.5 971114 Europe
530562/96 971024 Japan
97-707576 971025 Korea (Republic of)
EA-97-0257US 971022 Eurasia
96934064.5 980501 EPO
97912649.7 990506 EPO
2,267,769 990331 Canada
</TABLE>
<PAGE> 117
SECTION 2.21 EMPLOYEES; EMPLOYEE COMPENSATION
DPI maintains a 401(k) Plan for the benefit of its employees. Currently,
the Company makes no employer contributions to the Plan.
DPI has a 1995 Stock Option/Stock Issuance Plan.
DPI has an executive management bonus plan under which members of
management can earn annual cash bonuses (target level of 50% of base salary for
the CEO, and 25% of base salary for vice presidents), based on the attainment of
objectives established at the commencement of each fiscal year.
On April 17, 1998, DPI entered into an employment agreement with
Riccardo Pigliucci. In return for Mr. Pigliucci's services as President and
Chief Executive Officer of DPI, the Company agreed to pay Mr. Pigliucci an
annual base salary of $350,000 and an annual bonus of up to 50% of base salary,
grant Mr. Pigliucci the option to purchase 600,000 shares of DPI common stock,
and provide certain benefits in the event of a termination, all more fully
defined in the employment agreement.
<PAGE> 1
Exhibit 10.2
DISCOVERY PARTNERS INTERNATIONAL, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-----------
April 28, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Registration Rights.............................................. 1
1.1 Definitions............................................... 1
1.2 Request for Registration.................................. 3
1.3 BMS Request for Registration.............................. 5
1.4 RPR Request for Registration.............................. 6
1.5 Company Registration...................................... 7
1.6 Obligations of the Company................................ 7
1.7 Furnish Information....................................... 8
1.8 Expenses of Demand Registration........................... 9
1.9 Expenses of Company Registration.......................... 9
1.10 Underwriting Requirements................................. 9
1.11 Delay of Registration..................................... 10
1.12 Indemnification........................................... 10
1.13 Reports Under Securities Exchange Act of 1934............. 12
1.14 Form S-3 Registration..................................... 13
1.15 Assignment of Registration Rights......................... 13
1.16 Limitations on Subsequent Registration Rights............. 14
1.17 "Market Stand-Off" Agreement.............................. 15
1.18 Termination of Registration Rights........................ 15
2. Covenants of the Company......................................... 15
2.1 Delivery of Financial Statements.......................... 15
2.2 Inspection................................................ 16
2.3 Termination of Information and Inspection Covenants....... 16
2.4 Right of First Offer...................................... 17
2.5 Indemnification........................................... 18
2.6 Salaries of Officers...................................... 18
2.7 Additional Rights of Axys................................. 19
3. Miscellaneous.................................................... 19
3.1 Successors and Assigns.................................... 19
3.2 Governing Law............................................. 20
3.3 Counterparts.............................................. 20
3.4 Titles and Subtitles...................................... 20
3.5 Notices................................................... 20
3.6 Expenses.................................................. 20
3.7 Amendments and Waivers.................................... 20
3.8 Severability.............................................. 21
3.9 Aggregation of Stock...................................... 22
3.10 Entire Agreement; Amendment; Waiver....................... 22
3.11 Representation............................................ 22
</TABLE>
Schedule A Schedule of Investors
<PAGE> 3
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is made as of the 28th day of April, 2000, by and between Discovery
Partners International, Inc. (formerly known as IRORI), a California corporation
(the "Company"), and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor".
RECITALS
WHEREAS, the Company, DPII Newco, LLC, a Delaware limited liability
company ("Merger Sub"), Axys Pharmaceuticals, Inc., a Delaware corporation
("Axys"), and Axys Advanced Technologies, Inc., a Delaware corporation ("AAT")
have entered into that certain Agreement and Plan of Merger, dated as of April
11, 2000 (the "Merger Agreement"), pursuant to which Merger Sub is being merged
with and into AAT with the consequence that AAT will become a wholly-owned
subsidiary of the Company.
WHEREAS, certain of the Investors are presently holders of the
Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock and pursuant
thereto have entered into an Amended and Restated Investors' Rights Agreement
with the Company dated April 7, 2000 (the "Existing Rights Agreement"); and
WHEREAS, in order to induce Axys to consummate the transactions
contemplated by the Merger Agreement, all the Investors and the Company wish to
amend and restate the Existing Rights Agreement so that this Agreement will
govern the rights of all the Investors to cause the Company to register certain
shares of the Company's common stock ("Common Stock"), including shares of
Common Stock issuable to any Investors upon conversion of their respective
shares of the Company's preferred stock ("Preferred Stock"), and certain other
matters as set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
<PAGE> 4
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.15 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(e) The terms "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, (ii) the 130,000 shares of Common Stock held by Enterprise
Partners, III, L.P. and Enterprise Partners III, Associates, (iii) the 150,000
shares of Common Stock issuable upon the exercise of that certain Common Stock
Purchase Warrant dated as of July 18, 1995 between the Company and Enterprise
Partners III, L.P.; provided, however that such shares of Common Stock shall not
be deemed Registrable Securities for purposes of calculating either numerators
or denominators under Sections 1.2, 1.14, 1.16 and 3.7, (iv) the 7,425,000
shares of Common Stock issuable to Axys Pharmaceuticals, Inc. ("Axys") pursuant
to that certain Agreement and Plan of Merger, dated as of April 11, 2000, among
the Company, Axys, DPII Newco, LLC and Axys Advanced Technologies, Inc. (the
"Axys Common Stock"), (v) the 200,000 shares of Common Stock issuable upon the
exercise of that certain Warrant to Purchase Shares of Common Stock dated as of
April __, 2000 between the Company and Axys, and (vi) 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 Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or such specified Common Stock, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his rights under this Section 1 are not assigned. Provided, further,
however, that for the purposes of Section 1.3 and other sections to the extent
they refer to Section 1.3 (and for interpretation of the definitions of
"Registrable Securities then outstanding" and "Holder" as used in or with
reference to Section 1.3) only, the term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series D Preferred Stock
initially issued to Bristol-Myers Squibb Company ("BMS") and (ii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of such
Series D Preferred Stock initially issued to BMS -- and excluding from this
sentence's special definition, however, any Registrable Securities no longer
held by BMS. Provided, further, however, that for the purposes of Section 1.4
and other sections to the extent they refer to Section 1.4 (and for
interpretation of the definitions of "Registrable Securities then outstanding"
and "Holder" as used in or with reference to Section 1.4) only, the term
"Registrable Securities" means additionally (i) the Common Stock issuable or
issued upon conversion of the Series D Preferred Stock initially issued to
Rhone-Poulenc Rorer International
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Holdings Inc., now known as Aventis ("RPR") and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of such Series D Preferred
Stock initially issued to RPR -- and excluding from this sentence's special
definition, however, any Registrable Securities no longer held either by RPR or
by a company which is then in the same corporate family as RPR.
(g) 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, Registrable
Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier
of (i) December 31, 2001, or (ii) eleven (11) months 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 thirty percent (30%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of at least forty percent (40%) of the Registrable
Securities then outstanding (or a lesser percent of the Registrable Securities
if the anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $10,000,000,) then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event within
90 days of the receipt of such request, the registration under the Act of all
Registrable Securities which the Holders request to be registered, subject to
the limitations of subsection 1.2(b), within twenty (20) days of the mailing of
such notice by the Company in accordance with Section 3.5.
(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 subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his 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
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<PAGE> 6
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
1.6(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters approved for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, 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; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting. For purposes of the preceding sentence
concerning apportionment, for an Initiating Holder that is a holder of
Registrable Securities that is a partnership or corporation, the partners,
retired partners and shareholders of such Initiating Holder (and, in the case of
a partnership, any affiliated partnerships), or the estates and family members
of any such partners and retired partners and any trusts for the benefit of any
one of the foregoing persons shall be deemed to be a single "Initiating Holder,"
and any proportionate reduction with respect to such "Initiating Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals, including such "Initiating Holders" as defined
in this sentence.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, 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 shareholders 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 taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than twice in any 12-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date thirty 30 days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.5 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
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<PAGE> 7
(iii) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.14 below.
1.3 BMS Request for Registration.
(a) If the Company shall receive at any time after eleven months
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 BMS that the Company file a registration
statement under the Act covering the registration of at least forty percent
(40%) of the Registrable Securities then outstanding (or a lesser percent of the
Registrable Securities if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $10,000,000), then the
Company shall effect as soon as practicable, and in any event within 90 days of
the receipt of such request, the registration under the Act of all Registrable
Securities which BMS requests to be registered, subject to the limitations of
subsection 1.3(b).
(b) If BMS intends to distribute the Registrable Securities
covered by its request by means of an underwriting, it shall so advise the
Company as a part of its request made pursuant to subsection 1.3(a). The
underwriter will be selected by the Company and shall be reasonably acceptable
to BMS. BMS shall (together with the Company as provided in subsection 1.6(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters. Notwithstanding any other provision of this Section 1.2A, if the
underwriter advises BMS in writing that marketing factors require a limitation
of the number of shares to be underwritten, then the number of shares of
Registrable Securities that may be included in the underwriting shall be so
limited; provided, however, that the number of shares of Registrable Securities
to be included in such underwriting shall not be reduced unless all other
securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to BMS 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 shareholders 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 taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of BMS; provided, however, that the Company may not utilize this
right more than twice in any 12-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.3:
(i) After the Company has effected one registration pursuant
to this Section 1.3 and such registration has been declared or ordered
effective; or
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<PAGE> 8
(ii) During the period starting with the date thirty (30)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.5 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective.
1.4 RPR Request for Registration.
(a) If the Company shall receive at any time after eleven months
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 RPR that the Company file a registration
statement under the Act covering the registration of at least forty percent
(40%) of the Registrable Securities then outstanding (or a lesser percent of the
Registrable Securities if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $10,000,000), then the
Company shall effect as soon as practicable, and in any event within 90 days of
the receipt of such request, the registration under the Act of all Registrable
Securities which RPR requests to be registered, subject to the limitations of
subsection 1.4(b).
(b) If RPR intends to distribute the Registrable Securities
covered by its request by means of an underwriting, it shall so advise the
Company as a part of its request made pursuant to subsection 1.4(a). The
underwriter will be selected by the Company and shall be reasonably acceptable
to RPR. RPR shall (together with the Company as provided in subsection 1.6(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters. Notwithstanding any other provision of this Section 1.4, if the
underwriter advises RPR in writing that marketing factors require a limitation
of the number of shares to be sold in the offering, then the number of shares of
Registrable Securities that may be included in the underwriting shall be so
limited; provided, however, that the number of shares of Registrable Securities
to be included in such underwriting shall not be reduced unless all other
securities are first entirely excluded from the offering.
(c) Notwithstanding the foregoing, if the Company shall furnish
to RPR 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 shareholders 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 taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of RPR; provided, however, that the Company may not utilize this
right more than twice in any 12-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.4:
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<PAGE> 9
(i) After the Company has effected one registration pursuant
to this Section 1.4 and such registration has been declared or ordered
effective; or
(ii) During the period starting with the date thirty (30)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.5 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective.
1.5 Company Registration. Except with respect to the initial public
offering of the Company's securities for which no notice shall be required and
the provisions of this Section 1.5 shall not apply, if (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its stock or other securities under the 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, 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 or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
3.5, the Company shall, subject to the first sentence of this Section and the
provisions of Section 1.10, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.6 Obligations of the Company. Whenever required under this Section
1 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 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 a period of up to the earlier of one
hundred twenty (120) days or until the distribution contemplated in the
Registration Statement has been completed.
(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 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 Act, and such
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<PAGE> 10
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) 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.
(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 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) Cause all such Registrable Securities and Registrable Common
Stock registered pursuant hereto to be listed on each securities exchange on
which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities and Registrable Common Stock registered pursuant hereto and a CUSIP
number for all such Registrable Securities and Registrable Common Stock, in each
case not later than the effective date of such registration.
1.7 Furnish Information.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Sections 1.2, 1.3, 1.4 or 1.14 if, due to the
operation of subsection 1.7(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsections 1.2(a), 1.3(a), 1.4(a)
or 1.14(b), whichever is applicable.
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1.8 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 or 1.3 or 1.4,
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 1.2 or 1.3 or 1.4 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 1.2 or 1.3 or 1.4; provided further, that if the
registration request is withdrawn, at the request of the Holders of a majority
of the Registrable Securities to be registered, within one week after the
Company advises such Holders of a delay pursuant to Section 1.2(c) or (d)(ii),
Section 1.3(c) or (d)(ii), or Section 1.4(c) or (d)(ii), then the Holders shall
not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2 or 1.3 or 1.4. And provided further, with respect to the
main provision in the preceding sentence, 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 and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2 or 1.3 or 1.4.
1.9 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 1.5 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the reasonable fees and disbursements of
one counsel for the selling Holders, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.10 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock pursuant to
Section 1.5, the Company shall not be required under Section 1.5 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 (or by other persons entitled to select the underwriters), and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion 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 determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata (as nearly as practicable)
among the selling shareholders according to the total amount of
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<PAGE> 12
securities entitled to be included therein owned by each selling shareholder or
in such other proportions as shall mutually be agreed to by such selling
shareholders); provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced unless all
other shares of securities (except the securities proposed to be sold by the
Company in such underwriting) are first entirely excluded from the underwriting
but in no event shall the amount of securities of the selling Holders included
in the offering be reduced below thirty percent (30%) of the total amount of
securities included in such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
shareholder", and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder", as defined in this sentence.
1.11 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 1.
1.12 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act 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 Act, the 1934 Act, or any
rule or regulation promulgated under the Act, the 1934 Act; and the Company will
pay to each such Holder, 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; provided, however,
that the indemnity agreement contained in this subsection 1.12(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, underwriter or
controlling person. To the extent permitted by
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law, each selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act 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 pay any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.12(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.12(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this subsection 1.12(b) exceed the gross
proceeds from the offering received by such Holder.
(b) Promptly after receipt by an indemnified party under this
Section 1.12 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 1.12, 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 which may be represented without
conflict by one counsel) shall have the right to retain one separate 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
1.12, 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 1.12.
(c) If the indemnification provided for in this Section 1.12 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
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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.
(d) 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.
(e) The obligations of the Company and Holders under this
Section 1.12 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.13 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
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:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (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 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 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 ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 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.
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1.14 Form S-3 Registration. In case the Company shall receive from
the Holders of at least twenty percent (20%) of the Registrable Securities then
outstanding 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 1.14: (1) if
Form S-3 is not available for such offering by the Holders; (2) 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 $500,000; (3) 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 materially detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.14; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.14; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
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 1.14, 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. Registrations effected pursuant to
this Section 1.14 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2, 1.3 or 1.4.
1.15 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all
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<PAGE> 16
related obligations) by a Holder to a transferee or assignee of such securities
who, after such assignment or transfer, holds at least 100,000 shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations), or is a company
which is at the time of such transfer in the same corporate family as RPR and
thereafter remains in the same corporate family as RPR, provided: (a) 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; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.17 below; and (c) 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 Act. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1.
1.16 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 1.2 or Section
1.5 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 his securities will not reduce the amount of the
Registrable Securities of the Holders which is 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
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2. In addition, 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 Registrable Securities then outstanding
(within the meaning of the proviso in Section 1.1(f)), enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder to include such securities in any
registration filed under Section 1.3 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 his securities will
not reduce the amount of Registrable Securities of the Holders which is
included. In addition, 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
Registrable Securities then outstanding (within the meaning of the applicable
proviso in Section 1.1(f)), enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder to include such securities in any registration
filed under Section 1.4 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such
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<PAGE> 17
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of Registrable Securities of the Holders
which is included in any registration pursuant to Section 1.4 hereof.
1.17 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) Such agreement shall not exceed one hundred eighty (180)
days for the first such 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) All officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenants, 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 restrictions) until the end of such period.
1.18 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided
for in this Section 1 after the earlier of (i) five (5) years following the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public, or
(ii) such time as the Holder can sell all of such stock under Rule 144(k) (or
successor rule) promulgated by the SEC and such Holder holds less than one
percent (1%) of the outstanding stock of the Company.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. A "Major Investor" means an
Investor who holds a minimum of 250,000 shares of the Company's Preferred Stock
or, in the case of Axys Pharmaceuticals, Inc. ("Axys"), Axys shall be deemed to
be a "Major Investor" so long as Axys holds a minimum of 250,000 shares of the
Company's common stock (subject, in each
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<PAGE> 18
case, to appropriate adjustment for stock splits, stock dividends, combinations
and other recapitalizations); and in the case of transfers within RPR's
corporate family as permitted by Section 1.15, then so long as RPR's corporate
family as a whole holds a minimum of 250,000 shares of the Company's Preferred
Stock (subject to such adjustment), the corporation within RPR's corporate
family which owns the most such shares shall be entitled to the rights of a
Major Investor. The Company shall deliver to each Major Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles, and if requested by a Major Investor, audited and certified by
independent public accountants of nationally recognized standing selected by the
Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail;
(d) as soon as practicable, but in any event by December 1 of
each year, a budget and business plan for the next fiscal year, 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. The Company's Board of Directors shall
approve each such annual budget by January 31 of the year for which such budget
applies.
2.2 Inspection. The Company shall permit each Major Investor, at
such Major 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 the Major Investor; provided, however, that the Company shall not
be obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
2.3 Termination of Information and Inspection Covenants. Subject to
their earlier termination pursuant to the specific terms of each Section, the
covenants set forth in Sections 2.1, 2.2, 2.4 and 2.7 shall terminate as to
Major Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public in which all shares Preferred Stock are converted to Common
Stock is
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<PAGE> 19
consummated or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor a right of first offer with respect to future sales by the Company of
its Shares (as hereinafter defined). For purposes of this Section 2.4, Major
Investor includes any general partners and affiliates of a Major Investor. A
Major 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 shares of, any class of its
capital stock, the Company shall first make an offering of any such shares or
securities not purchased by Riccardo Pigliucci pursuant to Section 4 of the Key
Employee Agreement dated April 17, 1998 (the "Employment Agreement") between
Riccardo Pigliucci and the Company (such shares or securities not so purchased
by Riccardo Pigliucci are hereinafter referred to as the "Shares") to each Major
Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investor stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice, the
Major 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 A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and/or Series E
Preferred Stock then held, by such Major Investor bears to the total number of
shares of Common Stock of the Company then outstanding (assuming full conversion
of all convertible securities) issued and held, or issuable upon conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and/or Series E Preferred Stock then held, by
all the Major Investors. The Company shall promptly, in writing, inform each
Major Investor which purchases all the shares available to it ("Fully-Exercising
Major Investor") of any other Major Investor's failure to do likewise. During
the ten-day period commencing after receipt of such information, each
Fully-Exercising Major Investor shall be entitled to obtain that portion of the
Shares for which Major Investors were entitled to subscribe but which were not
subscribed for by the Major Investors which is equal to the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and/or Series E Preferred Stock then held, by such
Fully-Exercising Major Investor bears to the total number of shares of Common
Stock issued and held, or issuable upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and/or Series E Preferred Stock then held, by all Fully-Exercising Major
Investors who wish to purchase some of the unsubscribed shares.
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<PAGE> 20
(c) If all Shares which Major Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the 30-day period following
the expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at 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 30 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 the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of not to exceed 3,250,000 shares of
common stock (or options therefor) to employees, consultants, directors or
officers of the Company (and not repurchased at cost by the Company in
connection with the termination of employment or service relationship)
subsequent to the date of this Agreement, (ii) to or after consummation of a
bona fide, firmly underwritten public offering of shares of common stock,
registered under the Act pursuant to a registration statement on Form S-1, (iii)
to the issuance of securities pursuant to the conversion or exercise of
convertible or exercisable securities, (iv) to the issuance of securities in
connection with a bona fide business acquisition of or by the Company, whether
by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, or (v) to the issuance of stock, warrants or other securities or
rights to persons or entities with which the Company has or is establishing
business relationships provided such issuances are for other than primarily
equity financing purposes and involve other strategic elements which may include
without limitation, a joint marketing agreement, a license agreement, or a
technology development agreement.
(e) The right of first offer set forth in this Section 2.4 may
not be assigned or transferred, except that (i) such right is assignable by each
Holder to any wholly owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Act, controlling, controlled by or
under common control with, any such Holder, and (ii) such right is assignable
between and among any of the Holders, and (iii) Axys' right may also be assigned
to the extent permitted by the last sentence of Section 3.1.
2.5 Indemnification. The Company shall take all actions necessary to
indemnify its directors to the maximum extent permitted by applicable law,
including, without limitation, amending the Company's articles of incorporation
and bylaws (and any successor charter documents) and entering into contracts
with the directors to provide such indemnification; provided, however, that the
Company shall not be required to obtain directors insurance unless directed by
the Board of Directors.
2.6 Salaries of Officers. The Company's Board of Directors shall
approve the titles of officers and management of the Company and all salaries
and other compensation matters, including option grants, employee bonuses or
profit sharing plans, shall be reviewed and approved by the Company's Board of
Directors.
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<PAGE> 21
2.7 Additional Rights of Axys. So long as Axys holds at least
3,850,000 shares of the Registrable Securities then outstanding, including any
shares of the Company's Common Stock that may be issued to Axys pursuant to that
certain Indemnity Escrow Agreement, dated as of April 28, 2000, among the
Company, Axys and U.S. Trust Company National Association, each Investor agrees
that it shall not take any of the following actions unless Axys has previously
consented in writing to the taking of such action:
(a) accept any dividends or distributions declared by the
Company's Board of Directors with respect to the shares of the Company's
Preferred Stock held by such Investor;
(b) vote in favor of the liquidation, dissolution or winding-up
of the Company (within the meaning of Article III, Section B.2 of the Company's
articles of incorporation (or the equivalent provisions of any amended or
succeeding charter instrument));
(c) demand redemption of any such Investor's shares of Preferred
Stock in accordance with Article III, Section B(3) of the Company's articles of
incorporation (or the equivalent provisions of any amended or succeeding charter
instrument); or
(d) vote to approve any of the matters contemplated by Article
III, Section 6 of the Company's articles of incorporation (or the equivalent
provisions of any amended or succeeding charter instrument).
In addition, each Investor agrees that it shall waive any adjustment to the
applicable conversion price for the shares of Preferred Stock held by such
Investor that such Investor would receive pursuant to Article III, Section
4(d)(i) of the Company's articles of incorporation (or the equivalent provisions
of any amended or succeeding charter instrument) (each, an "Anti-Dilution
Adjustment"), unless Axys has previously consented in writing to the issuance of
the securities triggering such Anti-Dilution Adjustment.
2.8 Board Size. The Company agrees for the benefit of Axys not to,
before consummation of a bona fide, firmly underwritten public offering of
shares of common stock, registered under the Act pursuant to a registration
statement on Form S-1, reduce the size of its Board of Directors to less than
seven Directors.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). 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. Without limitation on any other rights of
assignment, the parties acknowledge that (A) if the Company reincorporates in
Delaware this Agreement shall be assigned to the new Delaware corporation and
the rights and obligations of the parties shall persist as if all references
19
<PAGE> 22
herein to "the Company" were references to such Delaware corporation; and (B)
Axys shall be allowed to make a bona fide pledge of its Company Common Stock and
Axys' rights under this Agreement may be assigned, on an indivisible basis, to
any person if both the following conditions apply: (i) the assignment to such
person is part of the enforcement against Axys' shares of Company Common Stock
of a security interest which Axys had, via a bona fide pledge, granted to a
lender, and (ii) the assignee shall have executed a written agreement,
reasonably satisfactory in form and substance to the Company and the other
Investors, pursuant to which such person becomes a party to this Agreement (as
then amended to date) and agrees to be bound by all the burdens thereof as if
such assignee was "Axys" and an Investor thereunder.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 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.
3.4 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.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be sent to
the address/fax number indicated for such party on the signature page hereof
(provided that any party at any time may change its address/fax number for
notice by ten (10) days' advance written notice to the other parties), and shall
be deemed effectively given upon (i) personal delivery to the party to be
notified, (ii) the time of successful facsimile transmission to the party to be
notified, (iii) sending by reputable overnight delivery service or (iv) upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, 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.
3.7 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 either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Axys
Common Stock then outstanding (including common stock issued upon conversion
thereof), voting together as a class on an as-converted basis (or, in the case
of the provisions of Section 1.3 for the special benefit of the Series D
Preferred Stock which was initially issued to BMS and the provisions of other
Sections to the extent they are with reference to Section 1.3, only with the
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<PAGE> 23
written consent of the Company, the holders of a majority of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Axys Common Stock then outstanding
(including common stock issued upon conversion thereof), voting together as a
class on an as-converted basis, and the holders of a majority of the Common
Stock issuable or issued upon conversion of the Series D Preferred Stock which
was initially issued to BMS) (or, in the case of the provisions of Section 1.4
for the special benefit of the Series D Preferred Stock which was initially
issued to RPR and the provisions of other Sections to the extent they are with
reference to Section 1.4, only with the written consent of the Company, the
holders of a majority of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Axys Common Stock then outstanding (including common stock issued upon
conversion thereof), voting together as a class on an as-converted basis, and
the holders of a majority of the Common Stock issuable or issued upon conversion
of the Series D Preferred Stock which was initially issued to RPR) (or, in the
case of any amendment or waiver which discriminates particularly against all the
Series D Preferred Stock, only with the written consent of the Company, the
holders of a majority of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Axys Common Stock then outstanding (including common stock issued upon
conversion thereof), voting together as a class on an as-converted basis, and
the holders of a majority of the Series D Preferred Stock then outstanding
(including common stock issued or issuable upon conversion thereof)) (or, in the
case of any amendment or waiver which discriminates particularly against the
Series E Preferred Stock, only with the written consent of the Company, the
holders of a majority of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
then outstanding (including common stock issued upon conversion thereof), voting
together as a class on an as-converted basis, and the holders of not less than
eighty percent (80%) of the Common Stock issued or issuable upon conversion of
the Series E Preferred Stock) (or, in the case of any amendment or waiver which
discriminates particularly against Axys or the Axys Common Stock or which
specially and adversely affects the provisions hereof which are for the special
benefit of Axys or the Axys Common Stock, only with the written consent of the
Company, the holders of a majority of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Axys Common Stock then outstanding (including common stock
issued upon conversion thereof), voting together as a class on an as-converted
basis, and the holders of a majority of the Axys Common Stock). Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, and/or Axys
Common Stock then outstanding (and common stock issued upon conversion thereof),
each future holder of all such shares, and the Company.
3.8 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 the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
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<PAGE> 24
3.9 Aggregation of Stock. All shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Axys Common Stock and any Common Stock issued upon
conversion thereof 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.
3.10 Entire Agreement; Amendment; Waiver. This Agreement (including
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
3.11 Representation. By executing this Agreement, each Investor
acknowledges and agrees that Brobeck, Phleger & Harrison represents the Company
solely and that each Investor has been advised to, and has had an opportunity
to, consult with its own attorney in connection with this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DISCOVERY PARTNERS INTERNATIONAL, INC.
(formerly known as IRORI), a California
corporation
By: /s/ Riccardo Pigliucci
-------------------------------------------
Riccardo Pigliucci, Chief Executive Officer
Address: 9640 Towne Center Drive
San Diego, CA 92121
INVESTORS:
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III,
L.P., Its General Partner
By: /s/ Andrew Senyei
-----------------------------------------
General Partner
Address: 1205 Prospect Street, Suite 500
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III,
L.P., Its General Partner
By: /s/ Andrew Senyei
-----------------------------------------
General Partner
Address: 1205 Prospect Street, Suite 500
La Jolla, CA 92037
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 26
MAYFIELD VIII
By: /s/ A. Grant Heidrich, III
Its General Partner
By:
-----------------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II
By: /s/ A Grant Heidrich, III
-----------------------------------------------
Its General Partner
By:
-----------------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
CROSSPOINT VENTURE PARTNERS-1996
By: /s/ Donald B. Milder
-----------------------------------------------
General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 27
CROSSPOINT VENTURE PARTNERS LS-1997
By: /s/ Donald B. Milder
-----------------------------------------------
General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92714
AGILENT TECHNOLOGIES, INC., f/k/a
Hewlett-Packard Company
By:
-----------------------------------------------
Its:
----------------------------------------------
Address: Mail Stop 20 BQ
3000 Hanover Street
Palo Alto, CA 94304
Attn: Craig Norlin, Legal Counsel
BRISTOL-MYERS SQUIBB COMPANY
By:
-----------------------------------------------
Its:
----------------------------------------------
Address: P.O. Box 4000
Route 206 & Province Line Road
Princeton, NJ 08543-4000
Attn: Vice President and Senior Counsel,
Pharmaceutical Research Institute and
Worldwide Strategic Business Development
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 28
BAYSTAR INTERNATIONAL LTD., a British
Virgin Islands Corporation
By: BayStar International Management, LLC
Its General Partner
By:
-----------------------------------------
Steve Lamar, Vice President
Address: 425 Market Street, 22nd Floor
San Francisco, CA 94105
--------------------------------------------
HAYDEN J. TRUBITT
Address: c/o Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
AXYS PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ William J. Newell
--------------------------------------------
William J. Newell, Senior Vice President
Address: 180 Kimball Way
South San Francisco, CA 94080
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 29
SCHEDULE A
SCHEDULE OF INVESTORS
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Mayfield VIII
Mayfield Associates Fund II
Crosspoint Venture Partners - 1996
Agilent Technologies, Inc. (formerly Hewlett-Packard)
Bristol-Myers Squibb Company
Crosspoint Venture Partners LS - 1997
Aventis (formerly Rhone-Poulenc Rorer International)
Pacific Venture Group II, L.P.
Baystar Capital, L.P.
Baystar International Ltd.
Hayden J. Trubitt
Axys Pharmaceuticals, Inc.
27
<PAGE> 1
Exhibit 10.3
AMENDMENT NO. 1 TO
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This Amendment No. 1 to Amended and Restated Shareholders' Agreement
("Amendment") is made as of April 28, 2000, with reference to the Amended and
Restated Shareholders' Agreement dated as of April 7, 2000 (the "Agreement").
The parties to this Amendment are Discovery Partners International, Inc.
(formerly known as IRORI), a California corporation (the "Company"), the holders
of shares of the Company's Common Stock listed on Exhibit A to the Agreement
(each of which is herein referred to as a "Shareholder," which term includes his
or her heirs, executors, guardians, successors and assigns), the investors which
purchased shares of the Company's Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock (the "Existing Investors") and Axys Pharmaceuticals, Inc., a Delaware
corporation ("Axys"). Capitalized terms used herein which are not defined herein
shall have the definition ascribed to them in the Agreement.
RECITALS
A. The Company, DPII Newco, LLC, a Delaware limited liability company
("Merger Sub"), Axys and Axys Advanced Technologies, Inc., a Delaware
corporation ("AAT") have entered into that certain Agreement and Plan of Merger,
dated as of April 11, 2000 (the "Merger Agreement") pursuant to which Merger Sub
is being merged with and into AAT with the consequence that AAT will become a
wholly-owned subsidiary of the Company.
B. As consideration for the acquisition of AAT from Axys pursuant to the
Merger Agreement, the Company is, among other things, issuing shares of its
Common Stock to Axys.
In consideration of the foregoing and the promises and covenants
contained herein and other good and valuable consideration the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Additional Parties to the Agreement. Axys hereby enters into and
becomes a party to the Agreement.
2. Amendment to Agreement. All references to "Investors" in the
Agreement shall be deemed to include and make reference to Axys. Also,
notwithstanding anything in the Agreement to the contrary, Axys shall be allowed
to make a bona fide pledge of its Company Common Stock and Axys' rights under
the Agreement may be assigned to any person if both the following conditions
apply: (i) the assignment to such person is part of the enforcement against
Axys' shares of Company Common Stock of a security interest which Axys had, via
a bona fide pledge, granted to a lender, and (ii) the assignee shall have
executed a written agreement, reasonably satisfactory in form and substance to
the Shareholders, the Existing Investors and the Company, pursuant to which such
person becomes a party to the Agreement (as then amended to
<PAGE> 2
date) and agrees to be bound by all the burdens thereof as if such assignee was
an Investor thereunder.
3. Reincorporation. Without limitation on any other rights of
assignment, the parties acknowledge that if the Company reincorporates in
Delaware the Agreement shall be assigned to the new Delaware corporation and the
rights and obligations of the parties shall persist as if all references in the
Agreement to "the Company" were references to such Delaware corporation.
4. Effect of Amendment. Except as amended and set forth above, the
Agreement shall continue in full force and effect.
5. Counterparts. This Amendment may be executed in any number of
counterparts, each which will be deemed an original, and all of which together
shall constitute one and the same instrument.
6. Severability. If one or more provisions of this Amendment are held to
be unenforceable under applicable law, such provision shall be excluded from
this Amendment and the balance of the Amendment shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7. Entire Agreement. This Amendment, together with the Agreement,
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
8. Governing Law. This Amendment shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 3
IN WITNESS WHEREOF, this Amendment is hereby executed as of the date
first written above.
DISCOVERY PARTNERS INTERNATIONAL, INC. (formerly
known as IRORI), a California corporation
By: /s/ Riccardo Pigliucci
-----------------------------------------------
Riccardo Pigliucci, Chief Executive Officer
Address: 9640 Towne Centre Drive
San Diego, CA 92121
SHAREHOLDERS: --------------------------------------------------
Dr. Michael Nova
Address: Scripps Research Institute
BCC405
10550 North Torrey Pines Road
La Jolla, CA 92037
/s/ K. C. Nicolaou
--------------------------------------------------
K.C. Nicolaou
Address: Scripps Research Institute
BCC405
10550 North Torrey Pines Road
La Jolla, CA 92037
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By: /s/ Andrew Senyei
------------------------------------------
General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 4
ENTERPRISE PARTNERS III, L.P.
INVESTORS:
By: Enterprise Management Partners III, L.P.,
Its General Partner
By: /s/ Senyei Senyei
---------------------------------------
General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By: /s/ Andrew Senyei
----------------------------------------
General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
MAYFIELD VIII,
a California Limited Partnership
By: Mayfield VIII Management, L.L.C.,
a Delaware limited liability
company, its general partner
By: /s/ A. Grant Heidrich, III
----------------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II,
a California limited partnership
By: /s/ A. Grant Heidrich, III
-----------------------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 5
CROSSPOINT VENTURE PARTNERS-1996
By: /s/ Donald B. Milder
-----------------------------------------------
General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
CROSSPOINT VENTURE PARTNERS LS-1997
By: /s/ Donald B. Milder
-----------------------------------------------
General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
AGILENT TECHNOLOGIES, INC., f/k/a
Hewlett-Packard Company
By:
-----------------------------------------------
Its:
----------------------------------------------
Address: Mail Stop 20 BQ
3000 Hanover Street
Palo Alto, CA 94304
Attn: Craig Norlin, Legal Counsel
BRISTOL-MYERS SQUIBB COMPANY
By:
Address: P.O. Box 4000
Route 206 & Province Line Road
Princeton, NJ 08543-4000
Attn: Vice President and Senior Counsel,
Pharmaceutical Research Institute and
Worldwide Strategic Business
Development
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 6
-------------------------------------------------
HAYDEN J. TRUBITT
Address: Brobeck, Phleger & Harrison, LLP
12390 El Camino Real
San Diego, CA 92130
AXYS PHARMACEUTICALS, INC.
By: /s/ William J. Newell
----------------------------------------------
William J. Newell, Senior Vice President
Address: 180 Kimball Way
South San Francisco, CA 94080
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 3 TO VOTING AGREEMENT
THIS AMENDMENT NO. 3 TO VOTING AGREEMENT ("Amendment") is made as of
April 28, 2000, by and among Discovery Partners International, Inc., a
California corporation formerly known as IRORI (the "Company"), Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P. (together,
"Enterprise"), Mayfield VIII, Mayfield Associates Fund II (together,
"Mayfield"), Crosspoint Venture Partners-1996, Crosspoint Venture Partners
LS-1997 (together, "Crosspoint"), Agilent Technologies, Inc. (formerly
Hewlett-Packard Company) ("Agilent"), Pacific Venture Group II, L.P.
("Pacific"), BayStar Capital, L.P. and BayStar International Ltd. (together
"BayStar"), Hayden J. Trubitt ("Trubitt") and Axys Pharmaceuticals, Inc.
("Axys"), with reference to the Voting Agreement, as amended and restated by
Amendment No. 2 to the Voting Agreement, dated April 7, 2000 (the "Voting
Agreement"), among the Company, Enterprise, Mayfield, Crosspoint, Agilent,
Pacific, Baystar and Trubitt. Enterprise, Mayfield, Crosspoint, Agilent,
Pacific, Baystar and Trubitt are collectively referred to herein as the
"Investors." RECITALS
A. The Company, DPII Newco, LLC, a Delaware limited liability company
("Merger Sub"), Axys and Axys Advanced Technologies, Inc., a Delaware
corporation ("AAT"), have entered into that certain Agreement and Plan of
Merger, dated as of April 11, 2000 (the "Merger Agreement") pursuant to which
Merger Sub is being merged with and into AAT with the consequence that AAT will
become a wholly-owned subsidiary of the Company.
B. Pursuant to the Company's Restated Articles of Incorporation, as
amended, the holders of the Company's Preferred Stock ("Preferred Stock") are
entitled to elect five (5) directors of the Company (the "Preferred Directors").
C. This Amendment is entered into as a condition to and in consideration
of the Merger Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED THAT THE VOTING AGREEMENT IS AMENDED
AND RESTATED TO READ IN FULL AS FOLLOWS:
1. Agreement to Vote for Enterprise Nominee.
a. During the term of this Voting Agreement, each of the
Investors agrees to vote all of its shares of the Company's Series A Preferred
Stock ("Series A Shares"), Series B Preferred Stock ("Series B Shares"), Series
C Preferred Stock ("Series C Shares"), Series D Preferred Stock ("Series D
Shares") and Series E Preferred Stock ("Series E Shares") now or hereafter owned
by it to elect one (1) nominee of Enterprise (the "Enterprise Nominee") as a
Preferred Director.
<PAGE> 2
b. Prior to each election of directors of the Company, Enterprise
shall designate the Enterprise Nominee in writing to the Company. The Company
shall promptly notify each of the Investors of Enterprise's choice of such
nominee. Any vacancy occurring because of the death, resignation, removal or
disqualification of the Enterprise Nominee shall be filled according to this
Section 1.
2. Agreement to Vote for Mayfield Nominee.
a. During the term of this Voting Agreement, each of the
Investors agrees to vote all of its Series A Shares, Series B Shares, Series C
Shares, Series D Shares and Series E Shares now or hereafter owned by it to
elect one (1) nominee of Mayfield (the "Mayfield Nominee") as a Preferred
Director.
b. Prior to each election of directors of the Company, Mayfield
shall designate the Mayfield Nominee in writing to the Company. The Company
shall promptly notify each of the Investors of Mayfield's choice of such
nominee. Any vacancy occurring because of the death, resignation, removal or
disqualification of the Mayfield Nominee shall be filled according to this
Section 2.
3. Agreement to Vote for Crosspoint Nominee.
a. During the term of this Voting Agreement, each of the
Investors agrees to vote all of its Series A Shares, Series B Shares, Series C
Shares, Series D Shares and Series E Shares now or hereafter owned by it to
elect one (1) nominee of Crosspoint (the "Crosspoint Nominee") as a Preferred
Director.
b. Prior to each election of directors of the Company, Crosspoint
shall designate the Crosspoint Nominee in writing to the Company. The Company
shall promptly notify each of the Investors of Crosspoint's choice of such
nominee. Any vacancy occurring because of the death, resignation, removal or
disqualification of the Crosspoint Nominee shall be filled according to this
Section 3.
4. Agreement to Vote for Axys Nominee.
a. During the term of this Voting Agreement, each of the
Investors agrees to vote all of its Series A Shares, Series B Shares, Series C
Shares, Series D Shares and Series E Shares now or hereafter owned by it to
elect one (1) nominee of Axys (the "Axys Nominee") as a Preferred Director.
b. Prior to each election of directors of the Company, Axys shall
designate the Axys Nominee in writing to the Company. The Company shall promptly
notify each of the Investors of Axys' choice of such nominee. Any vacancy
occurring because of the death, resignation, removal or disqualification of the
Axys Nominee shall be filled according to this Section 3.
2
<PAGE> 3
5. Covenants of the Investors and the Company. The Company, Axys and the
Investors agree to use their reasonable best efforts to ensure that the rights
given to Axys and the Investors hereunder are effective and that Axys and the
Investors shall enjoy the benefits hereof. Such reasonable best efforts shall
include, without limitation, the use of the Company's, Axys' and the Investors'
reasonable best efforts to cause the nomination of the Enterprise Nominee, the
Mayfield Nominee, the Crosspoint Nominee and the Axys Nominee at each election
of the Board of Directors. Neither the Company, Axys nor any of the Investors
shall, by any voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be performed hereunder by the Company, Axys
or the Investors, respectively, but shall at all times in good faith assist in
the carrying out of all of the provisions of this Voting Agreement and shall use
their reasonable best efforts to protect the rights of the Investors and Axys
hereunder against impairment.
6. Successors and Assigns.
a. The Investors' rights under this Agreement are not assignable
without the prior written consent of the Company and the holders of a majority
of the Preferred Stock then held by the Investors (the "Majority Investors"),
which consent may be withheld for any reason whatsoever. Axys' rights under this
Agreement are not assignable without the prior written consent of the Company,
which consent may be withheld for any reason whatsoever. Notwithstanding the
foregoing, Axys shall be allowed to make a bona fide pledge of its Company
Common Stock and Axys' rights under this Agreement may be assigned, on an
indivisible basis, to any person if both the following conditions apply: (i) the
assignment to such person is part of the enforcement against Axys' shares of
Company Common Stock of a security interest which Axys had, via a bona fide
pledge, granted to a lender, and (ii) the assignee complies with Section 6(b)
below.
b. The burdens of this Voting Agreement shall be binding upon the
successors and assigns to whom the Investors transfer any of their respective
Series A Shares, Series B Shares, Series C Shares, Series D Shares and/or Series
E Shares. The Company shall not permit the transfer of any Series A Shares,
Series B Shares, Series C Shares, Series D Shares and/or Series E Shares on its
books or issue a new certificate representing any Series A Shares, Series B
Shares, Series C Shares, Series D Shares and/or Series E Shares unless and until
the person to whom such security is to be transferred shall have executed a
written agreement, reasonably satisfactory in form and substance to the Majority
Investors and the Company, pursuant to which such person becomes a party to this
Voting Agreement and agrees to be bound by all the burdens hereof as if such
person was an Investor hereunder.
c. The provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the Company. Without limitation on
any other rights of assignment, the parties acknowledge that if the Company
reincorporates in Delaware this Agreement shall be assigned to the new Delaware
corporation and the rights and obligations of the parties shall persist as if
all references herein to "the Company" were references to such Delaware
corporation.
3
<PAGE> 4
7. Legends. Each certificate representing any Series A Shares, Series B
Shares, Series C Shares, Series D Shares or Series E Shares held by the
Investors shall be endorsed by the Company with the following legend:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT (A
COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER), AND BY ACCEPTING
ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST
SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
BURDENS OF SAID VOTING AGREEMENT.
8. Termination. This Voting Agreement shall terminate upon the earlier
of (i) the consummation of the Company's initial public offering on a firm
underwriting basis, (ii) the closing of a consolidation or merger of the Company
with or into any other corporation or corporations, or a sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, (iii)
as to each Investor, that date when such Investor (a) holds less than 750,000
Series B Shares and/or Series A Shares, (b) holds less than 100,000 Series C
Shares or Series D Shares, and (c) holds less than 100,000 Series E Shares, or
(iv) as to Axys, that date when Axys holds less than 750,000 shares of the
Company's Common Stock.
9. Amendments and Waivers. Any term hereof may be amended and the
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company, the Majority Investors or their successors and permitted
assigns and Axys or its successors or permitted assigns. Any amendment or waiver
so effected shall be binding upon the Company, Axys and all of the Investors,
their successors and assigns.
10. Severability. Whenever possible, each provision of this Voting
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Voting Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Voting Agreement.
11. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California, without regard to the conflict of
laws provisions thereof.
12. Notices. All notices, requests and other communications to the
Company or any of the Investors hereunder shall be in writing (including
telecopy or similar electronic transmissions), shall refer specifically to this
Voting Agreement and shall be personally delivered or sent by telecopy or other
electronic facsimile transmission, overnight delivery with a nationally
recognized overnight delivery service or by registered or certified mail, return
receipt
4
<PAGE> 5
requested, postage prepaid, in each case to the respective address specified
below (or such other address as may be specified in writing to the other parties
hereto):
a. If to the Company, to:
DISCOVERY PARTNERS INTERNATIONAL, INC.
9640 Towne Center Drive
San Diego, CA 92121
Attention: Chief Executive Officer
Fax No.: (858) 455-8088
b. If to Enterprise, to:
ENTERPRISE PARTNERS
7979 Ivanhoe Avenue, Suite 550
La Jolla, California 92037
Attention: Andrew E. Senyei,
General Partner
Fax No.: (858) 454-2489
c. If to Mayfield, to:
MAYFIELD ASSOCIATES
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: A. Grant Heidrich,
General Partner
Fax No.: (650) 854-5712
d. If to Crosspoint, to:
CROSSPOINT VENTURE PARTNERS
18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
Attention: General Partner
Fax No.: (714) 852-9804
e. If to Agilent, to:
AGILENT TECHNOLOGIES, INC.
3000 Hanover Street
Palo Alto, CA 94304
Attention: Director, Corporate Development
Fax No.: (650) 852-8432
With a copy to:
AGILENT TECHNOLOGIES, INC.
5
<PAGE> 6
3000 Hanover Street
Palo Alto, CA 94304
Attention: General Counsel
Fax No.: (650) 852-8019
f. If to Pacific, to:
PACIFIC VENTURE GROUP
15635 Alton Parkway, Suite 230
Irvine, CA 92618
Attention: Ralph C. Sabin
Fax No.: (949) 753-8932
g. If to BayStar, to:
BAYSTAR CAPITAL
425 Market Street, 22nd Floor
San Francisco, CA 94105
Attention: Sherrill Lybrook, Principal
Fax No.: (415) 512-6472
h. If to Trubitt, to:
HAYDEN J. TRUBITT
Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Fax No.: (858) 720-2555
i. If to Axys, to:
AXYS PHARMACEUTICALS, INC.
180 Kimball Way
South San Francisco, CA 94080
Fax No.: (650) 829-1067
Attention: William J. Newell, Esq.
with a copy to:
COOLEY GODWARD, LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Fax No.: (650) 849-7400
Attention: Alan C. Mendelson, Esq.
6
<PAGE> 7
Any notice or communication given in conformity with this Section 12 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or electronic transmission, one (1) day after deposit with a nationally
recognized overnight delivery service and three (3) days after mailing, if
mailed.
13. Equitable Remedies. The Company, the Investors and Axys acknowledge
and agree that the legal remedies available to the Investors and/or Axys in the
event any party violates the covenants and agreements made in this Voting
Agreement would be inadequate and that the Investors and/or Axys shall be
entitled, without posting any bond or other security, to temporary, preliminary,
and permanent injunctive relief, specific performance and other equitable
remedies in the event of such a violation, in addition to any other remedies
which the Investors and/or Axys may have at law or in equity.
14. Counterparts. This Voting Agreement may be executed in any number
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 hereto have executed this Amendment No.
3 to Voting Agreement as of the date first written above.
DISCOVERY PARTNERS, INC., a California corporation
By: /s/ Riccardo Pigliucci
-------------------------------------------
Riccardo Pigliucci, Chief Executive Officer
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P., Its General Partner
By: /s/ Andrew Senyei
-------------------------------------------
General Partner
7
<PAGE> 8
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P., Its General Partner
By: /s/ Andrew Senyei
-------------------------------------------
General Partner
MAYFIELD VIII, a California Limited Partnership
By: MAYFIELD VIII MANAGEMENT, L.L.C., a Delaware Limited Liability
Company, its General Partner
By: /s/ A. Grant Heidrich, III
--------------------------------------
Title:
--------------------------------------
MAYFIELD ASSOCIATES FUND II, a California Limited Partnership
By: /s/ A. Grant Heidrich, III
--------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS-1996
By: /s/ Donald B. Milder
--------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS LS-1997
By: /s/ Donald B. Milder
--------------------------------------
General Partner
8
<PAGE> 9
AXYS PHARMACEUTICALS, INC., a Delaware corporation
By: /s/ William J. Newell
--------------------------------------
William J. Newell, Senior Vice President
9
<PAGE> 1
Exhibit 10.7
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
This NON-COMPETITION AND NON-DISCLOSURE AGREEMENT (this "Agreement") is
made as of April 28, 2000 (the "Effective Date") by and between Discovery
Partners International, Inc., a California corporation ("DPII"), and Axys
Pharmaceuticals, Inc., a Delaware corporation ("Axys").
RECITALS
WHEREAS, DPII, Merger Sub, Axys and Axys Advanced Technologies, Inc., a
Delaware corporation ("AAT") have entered into that certain Agreement and Plan
of Merger, dated as of April 11, 2000 (the "Merger Agreement") pursuant to which
Merger Sub is being merged with and into AAT (the "Merger") with the consequence
that AAT will become a wholly-owned subsidiary of DPII (capitalized terms used
herein and not otherwise defined herein shall have the meanings given such terms
in the Merger Agreement);
WHEREAS, the nature of a reverse triangle merger is economically
equivalent to a purchase by DPII of all of the outstanding stock of AAT (the
"Stock") from Axys;
WHEREAS, the going concern value of the Stock as sold by Axys to DPII
would be diminished substantially if Axys were to compete with AAT in the
Business after the Merger, and Axys is willing to provide DPII certain covenants
against competing with AAT in the Business as provided below, but subject to the
exceptions set forth herein;
WHEREAS, Axys (through AAT) currently conducts the Business in every
nation, state and county in the world;
WHEREAS, the Merger Agreement requires that Axys enter into this
Agreement as a condition to the obligation of DPII to consummate the Merger and
to consummate the other transactions contemplated by the Merger Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement, and in connection with the Closing under the Merger Agreement,
the parties hereto agree as follows:
1. NON-COMPETITION. As an inducement for DPII to enter into the
Merger Agreement and to perform its obligations thereunder, and in consideration
of Axys' exposure to confidential information of the Business, Axys hereby
covenants as follows:
a. IN GENERAL. Subject to the terms of this Agreement,
commencing on the Effective Date and until the later of (i) 48 months after the
Effective Date and (ii) the date
<PAGE> 2
on which Axys (together with any and all of its Affiliates) owns less than
fifteen percent (15%) of the outstanding Common Stock of DPII (the "Term"), Axys
shall not, directly or indirectly, own, manage, engage in, operate or conduct or
assist any person or entity (including as a consultant) to conduct any business,
or have any interest in any business, person, firm, corporation or other entity
(as a principal, owner, agent, shareholder, joint venturer, partner, security
holder (except for the ownership of securities constituting not more than five
percent (5%) of the outstanding securities of the issuer thereof, and further
excluding Axys' interest in DPII), or creditor (except for trade credit extended
in the ordinary course of business)), that engages, directly or indirectly,
anywhere in the world, in any business that is the same as, similar to or
competitive with the Business as conducted by AAT on the Effective Date. The
covenants set forth in this Section 1 shall be construed as a series of separate
covenants covering their subject matter in each of the separate nations, states
and counties where DPII conducts the Business, and except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants set forth in this Section 1. To the extent that any such covenant
shall be judicially unenforceable in any one or more of such nations, states and
counties, such covenant shall not be affected with respect to each of the other
nations, states and counties. Each covenant with respect to such nation, state
and county shall be construed as severable and independent. The foregoing
covenants shall all terminate at the end of the Term.
b. NO DIVERSION OF OTHERS.
(i) During the Term, Axys shall not, either for
itself or for any other person, firm, corporation or other entity, directly or
indirectly, or by action in concert with others: (A) induce or influence, or
seek to induce or influence, any person who is engaged by DPII (as an agent,
employee, consultant, or in any other capacity, but not including legal or
accounting professionals) or any successor thereto with the purpose of engaging
such person for Axys or for a business competitive with DPII or the Business.
(ii) During the Term, DPII and AAT shall not,
either for itself or for any other person, firm, corporation or other entity,
directly or indirectly, or by action in concert with others, induce or influence
or seek to induce or influence, any person who is engaged by Axys (as an agent,
employee, consultant or in any other capacity, but not including legal or
accounting professionals) or any successor thereto with the purpose of engaging
such person for DPII or AAT or for a business competitive with Axys or its
business.
c. ORGANIZING COMPETITIVE BUSINESS. Without limiting
any of the other provisions contained in this Section 1, during the Term, Axys
shall not discuss AAT's Business with any third party known by Axys to be
planning or preparing to compete with the Business (as currently conducted by
AAT), or conspire with agents, employees, consultants, other representatives of
DPII or any other third party for the purpose of organizing any business
activity competitive with the Business of AAT as currently conducted.
d. CERTAIN DEFINITIONS. For the purposes of this
Agreement, the term "Axys," as used in this Agreement, shall include both Axys
and its present and future Affiliates (as defined below) so long as they remain
as such. For the purposes of this Agreement, the term "DPII" as used in this
Agreement, shall include both DPII and its present and future Affiliates,
including AAT, so long as they remain as such. As used herein, the term
"Affiliate" means, with
<PAGE> 3
respect to a particular party, another corporation, partnership or similar
entity that controls, is controlled by or is under common control with such
party, but in any case, only for the duration of the period that such other
corporation, partnership or similar entity controls, is controlled by or is
under common control with such party. For the purposes of the definition in this
Section 1.3, the word "control" (including, with correlative meaning, the terms
"controlled by" or "under the common control with") means the ownership of at
least fifty percent (50%) of the voting stock (or voting or membership interest,
if not a corporation) of such entity.
2. CONFIDENTIAL INFORMATION AND NON-DISCLOSURE.
a. DEFINITION OF CONFIDENTIAL INFORMATION; CERTAIN
OBLIGATIONS OF AXYS. As used herein, "Confidential Information" means (i)
Confidential Information as such term is defined in that certain Technology
Assignment and License Agreement (the "Assignment Agreement") between Axys and
AAT of even date herewith and (ii) Compound Information as such term is defined
in that certain Compound Purchase Agreement (the "Compound Purchase Agreement")
between Axys and AAT of even date herewith. Axys understands that maintenance of
the confidential nature of the Confidential Information may be important to
AAT's future use and practice of the rights granted to AAT by Axys under the
Assignment Agreement, and thus the value of AAT to DPII, and thus Axys agrees
that is shall use reasonable efforts to preserve the confidentiality of such
Confidential Information and shall not publish it, or otherwise disclose it, to
third parties, except under appropriate written confidentiality and
limitation-of-use agreements for the purposes of exercising its limited
sublicense rights under Section 2.2 of the Assignment Agreement and as provided
in Sections 2.2, 2.3 and 4.1 of the Compound Purchase Agreement, or use such
Confidential Information for any purpose, except as permitted under Section 2.2
of the Assignment Agreement and as provided in Sections 2.2, 2.3 and 4.1 of the
Compound Purchase Agreement. The parties hereto agree that the failure of any
Confidential Information to be marked or otherwise labeled as confidential or
proprietary information shall not affect its status as Confidential Information.
b. EXCEPTIONS. The obligations set forth in Section
2(a) shall not apply to any such Confidential Information that Axys can
demonstrate by competent written evidence:
(i) is or becomes generally available to the
public or otherwise part of the public domain other than through any act or
omission of Axys in breach of this Agreement;
(ii) is independently developed by Axys or its
Affiliate without using any of the Confidential Information; or
(iii) is disclosed to Axys by a third party that
has no obligation not to disclose such Information to Axys.
c. PERMITTED DISCLOSURE. Notwithstanding the
limitations in this Section 2, Axys may disclose Confidential Information to the
extent such disclosure is reasonably necessary in the following instances, but
solely for the limited purpose of such necessity:
<PAGE> 4
(i) filing or prosecuting patent applications
which Axys is allowed to file or prosecute;
(ii) regulatory and tax filings;
(iii) defending litigation or (subject to AAT's
prior written consent) prosecuting litigation; and
(iv) complying with applicable governmental laws
or regulations or valid court orders.
d. Notwithstanding the foregoing, in the event Axys
is required to make a disclosure of the Confidential Information pursuant to
subsection (c), it will give reasonable advance notice to DPII of such
disclosure and endeavor in good faith to secure confidential treatment of such
information. In any event, the Parties agree to take all reasonable action to
limit or avoid disclosure of Confidential Information hereunder. Further, the
Parties agree to consult with one another on the provisions of this Agreement to
be redacted in any filings made by a Party with the United States Securities and
Exchange Commission or as otherwise required by law.
e. NONINTERFERENCE. Axys agrees never to assert any
employment agreement, nondisclosure/nonuse agreement, information and inventions
agreement, noncompetition agreement or other similar agreement to prevent or
punish the engagement by DPII of any person for the purpose of the Business or
the use by any person of Confidential Information in the interest of DPII for
the purpose of the Business, but shall use reasonable efforts, as DPII's
expense, to enforce such agreements against persons if DPII so reasonably
requests to protect the Business; provided, however, that the foregoing shall
not apply to the enforcement by Axys of any provisions of any such agreements to
protect against the unauthorized disclosure of, or regarding ownership of, the
confidential or proprietary information of Axys (i.e., information that is not
Confidential Information) in breach of such agreement.
3. EXCEPTION TO AXYS' OBLIGATIONS. Notwithstanding anything in this
Agreement to the contrary, DPII and Axys hereby agree that (i) Axys and its
Affiliates and permitted sublicensees shall be permitted to conduct any and all
activities that are permitted by license rights granted to Axys and its
Affiliates and permitted sublicensees under Section 2.2 of the Assignment
Agreement, as such license rights are expressly limited in the Assignment
Agreement and/or under Sections 2.3, 2.4 and 4.1 of the Compound Purchase
Agreement as such rights are expressly limited in such Agreement ; (ii) Axys and
its Affiliates and permitted sublicensees shall be allowed to use any and all of
the Confidential Information to the extent that such use is in conjunction with
the activities permitted by the limited license rights granted to Axys under
Section 2.2 of the Assignment Agreement, subject to the limitations and
restrictions on such use therein, and/or under Sections 2.3, 2.4 and 4.1 of the
Compound Purchase Agreement, subject to the limitations and restrictions on such
use therein; and (iii) that such permitted activities and use of the
Confidential Information shall be deemed not to violate Sections 1 and/or 2 of
this Agreement. DPII hereby covenants that DPII, AAT and any Affiliates or
successors in interest of either of them shall not sue or otherwise bring any
claim or cause of
<PAGE> 5
action against Axys or its Affiliates or any permitted sublicensees for any
activity that is permitted by the foregoing sentence. Notwithstanding anything
in this Agreement to the contrary, DPII and AAT hereby agree that (1) the
restrictions and obligations in Section 1 of this Agreement shall not apply to
the business of any acquiror of Axys to the extent of any ongoing business
activities of such acquiror; and (2) so long as Akkadix Corporation is not an
Affiliate of Axys, any actions of Akkadix that are or may be construed to be the
same as, similar to or competitive with the Business, and any Axys discussions
with Akkadix or disclosures of Confidential Information to Akkadix in connection
with that certain License Agreement between Axys and Xyris Corporation (the
predecessor of Akkadix) dated January 29, 1999 (the "Akkadix License"), of the
Axys Technology, shall not constitute or be deemed to be a violation by Axys of
its obligations under Sections 1 and/or 2 of this Agreement.
4. REASONABLENESS OF RESTRICTIONS. AXYS HAS CAREFULLY READ AND
CONSIDERED THE PROVISIONS OF SECTIONS 1 AND 2 HEREOF (AS MODIFIED BY SECTION 3
HEREOF) AND, HAVING DONE SO, HEREBY AGREES THAT THE RESTRICTIONS SET FORTH IN
SUCH SECTIONS ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE
PROTECTION OF THE INTERESTS OF DPII AND THE BUSINESS.
5. INJUNCTIVE RELIEF.
a. IN GENERAL. Axys acknowledges and agrees that
DPII shall suffer irreparable harm in the event that Axys breaches any of its
obligations under Section 1 or 2 hereof, and that monetary damages shall be
inadequate to compensate DPII for any such breach. Axys agrees that in the event
of any breach or threatened breach by Axys of any of the provisions of Section 2
hereof, DPII shall be entitled to seek a temporary restraining order,
preliminary injunction and permanent injunction in order to prevent or restrain
any such breach or threatened breach by Axys, or by any or all of Axys's agents,
representatives or other persons directly or indirectly acting for, on behalf of
or with Axys. As to any threatened or actual breach of Axys' obligations under
Section 2, Axys hereby waives any requirement that DPII submit proof of the
economic value of any trade secret or post a bond or other security.
b. NO LIMITATION OF REMEDIES. Notwithstanding the
provisions set forth in Section 5(a), above, or any other provision contained in
this Agreement, the parties hereby agree that no remedy conferred by any of the
specific provisions of this Agreement, including, without limitation, this
Section 5, is intended to be exclusive of any other remedy, and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
6. MISCELLANEOUS.
a. NOTICES. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been duly
given only if delivered personally or by facsimile transmission with answer back
confirmation or mailed (first class, postage prepaid) or by overnight courier to
the parties at the following addresses or facsimile numbers:
<PAGE> 6
If to Axys, to:
Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, CA 94080
Facsimile No.: (650) 829-1067
Attention: John Walker, Chairman and Chief Executive
Officer
with copies to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile No.: (650) 857-6663
Attention: Barclay James Kamb, Esq.
If to DPII, to:
Discovery Partners International, Inc.
9640 Towne Centre Drive
San Diego, CA 92121
Facsimile No.: (858) 455-8088
Attention: Riccardo Pigliucci, Chief Executive Officer
and President
with copies to:
Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Facsimile No.: (858) 720-2555
Attention: Hayden Trubitt, Esq.
All such notices, requests and other communications will (i) if delivered
personally or by overnight courier to the address as provided in this Section
6(a), be deemed given upon delivery, (ii) if delivered by facsimile transmission
to the facsimile number as provided in this Section 6(a), be deemed given upon
sending, and (iii) if delivered by mail in the manner described above to the
address as provided in this Section 6(a), be deemed given two business days
after mailing (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice,
request or other communication is to be delivered pursuant to this Section). Any
party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other parties hereto.
b. ENTIRE AGREEMENT. This Agreement, the Purchase
Agreement (and all exhibits and schedules attached thereto) and all other
documents delivered in connection herewith supersede all prior discussions and
agreements among the parties with respect to the subject matter hereof and
thereof and contains the sole and entire agreement among the parties
<PAGE> 7
hereto with respect thereto; provided, however, that any provisions of any prior
agreement pertaining to nondisclosure/nonuse are not superseded and remain in
effect.
c. WAIVER. Any term or condition of this Agreement
may be waived at any time by the party that is entitled to the benefit thereof,
but no such waiver shall be effective unless set forth in a written instrument
duly executed by or on behalf of the party waiving such term or condition. No
waiver by any party hereto of any term or condition of this Agreement, in any
one or more instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any future occasion.
All remedies, either under this Agreement or by law or otherwise afforded, will
be cumulative and not alternative.
d. AMENDMENT. This Agreement may be amended,
supplemented or modified only by a written instrument duly executed by or on
behalf of each party hereto.
e. THIRD PARTIES. The terms and provisions of this
Agreement are intended solely for the benefit of Axys, DPII and DPII's
successors or assigns, and it is not the intention of the parties to confer
third-party beneficiary rights upon any other person. Axys Pharmaceuticals, Inc.
shall be responsible for any violation of the provisions of this Agreement by
any present or future affiliate of Axys Pharmaceuticals, Inc., excluding AAT.
f. HEADINGS. The headings used in this Agreement
have been inserted for convenience of reference only and do not define or limit
the provisions hereof.
g. SEVERABILITY. All provisions contained herein are
severable and in the event that any of them shall be held to be to any extent
invalid or otherwise unenforceable by any court of competent jurisdiction, such
provision shall be excised from this Agreement; provided, however, that if the
reason for such invalidity or unenforceability is that the affected provision
calls for an excessive amount of time or money or area or an excessive breadth
or scope of coverage or otherwise requires an excessive degree of any thing or
imposes any excessively onerous restriction or requirement, the affected
provision shall not be excised but instead shall be construed as if it were
written so as to call only for the amount of money, time, area, breadth, scope
and/or other thing, restriction or requirement (but nonetheless for the maximum
possible amount of money, time, area, breadth, scope and/or other thing,
restriction or requirement) which would render such provision valid and
enforceable, all so as to effectuate to the greatest possible extent the
parties' expressed intent; and in every case the remainder of this Agreement
shall not be affected thereby and shall remain valid and enforceable, as if such
excised or affected provision were not contained herein.
h. GOVERNING LAW, CONSENT TO JURISDICTION AND FORUM
SELECTION. This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts executed and
performed in such State, without giving effect to conflicts of laws principles.
The parties hereto agree that all actions or proceedings arising in connection
with this Agreement (as to proceedings initiated by Axys) shall be initiated and
tried exclusively in the State and Federal courts located in the County of San
Diego, State of California. The parties hereto agree that all actions or
proceedings arising in connection with this Agreement (as to proceedings
initiated by DPII) shall be initiated and tried exclusively in the
<PAGE> 8
State and Federal courts located in the County of San Francisco, State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this Section 6(h). Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of San Diego, State of California
(as to proceedings initiated by Axys) or in the County of San Francisco, State
of California (as to proceedings initiated by DPII) shall have in personam
jurisdiction and venue over each of them for the purposes of litigating any
dispute, controversy or proceeding arising out of or related to this Agreement.
Each party hereby authorizes and accepts service of process sufficient for
personal jurisdiction in any action against it as contemplated by this Section
6(h) by registered or certified mail, return receipt requested, postage prepaid,
to its address for the giving of notices as set forth in this Agreement, or in
the manner set forth in Section 6(a) of this Agreement for the giving of notice.
Any final judgment rendered against a party in any action or proceeding shall be
conclusive as to the subject of such final judgment and may be enforced in other
jurisdictions in any manner provided by law
i. ATTORNEYS FEES. In the event suit or action is
brought by any party under this Agreement to enforce or construe any of its
terms, the prevailing party shall be entitled to recover, in addition to all
other amounts and relief, its reasonable costs and attorneys fees incurred at
and in preparation for arbitration, trial, appeal and review, such sum to be set
by the arbitrator or court before which the matter is heard.
j. CONSTRUCTION. No provision of this Agreement
shall be construed in favor of or against any party on the ground that such
party or its counsel drafted the provision. This Agreement shall at all times be
construed so as to carry out the purposes stated herein.
k. COUNTERPARTS. This Agreement may be executed in
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
DISCOVERY PARTNERS INTERNATIONAL, INC.,
a California corporation
By: /s/ Riccardo Pigliucci
------------------------------
Name: Riccardo Pigliucci
------------------------------
Title: Chairman and CEO
------------------------------
AXYS PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ William J. Newell
------------------------------
Name: William J. Newell
------------------------------
Title: Senior Vice President
------------------------------
[SIGNATURE PAGE TO NON-COMPETITION AND NON-DISCLOSURE AGREEMENT]
<PAGE> 1
EXHIBIT 10.8
INDEMNITY ESCROW AGREEMENT
This INDEMNITY ESCROW AGREEMENT (this "Agreement"), dated as of April
28, 2000, is by and among Discovery Partners International, Inc., a California
corporation ("DPII"), Axys Pharmaceuticals, Inc., a Delaware corporation
("Axys"), and the institution named on the signature page under "Escrow Agent,"
as Escrow Agent ("Escrow Agent"). Unless otherwise defined herein, all
capitalized terms used in this Agreement shall have the meaning ascribed to such
terms in the Agreement and Plan of Merger dated as of April 11, 2000 (the
"Merger Agreement"), by and among DPII, DPII Newco, LLC, a Delaware limited
liability company and a wholly-owned subsidiary of DPII, Axys Advanced
Technologies, Inc., a Delaware corporation ("AAT") and Axys.
Accordingly, the parties hereto agree as follows:
1. Appointment and Acceptance. Axys and DPII hereby appoint Escrow Agent
as escrow agent for the purposes and upon the terms and conditions hereinafter
set forth. Escrow Agent hereby accepts such appointment and agrees to act as
escrow agent hereunder and to hold, invest and dispose of any funds received by
it hereunder in accordance with the terms and conditions hereinafter set forth.
2. Deposit of Escrowed Consideration. On the date hereof, DPII delivered
to Escrow Agent for deposit in escrow pursuant to the provisions hereof a share
certificate (the "Share Certificate") for *** shares of DPII Common Stock, made
out in favor of Axys (the "Escrowed Consideration").
3. Purpose of Agreement. DPII and Axys represent that this Agreement has
been executed and the deposit of the Escrowed Consideration hereunder has been
made pursuant to the Merger Agreement for the purpose of providing a fund for
the payment of the first amounts owed (if any) to DPII in connection with the
Merger Agreement ("Covered Claims").
4. Delivery of Escrowed Consideration.
(a) Because of the lump nature of the share certificate which
constitutes the initial Escrowed Consideration, the parties agree that in any
case where Escrowed Consideration is to be delivered to DPII hereunder, such
delivery shall be accomplished by delivery of the Share Certificate to DPII;
DPII shall promptly calculate, based on the "Fair Market Value" per share (as
defined below), the number of shares to be cancelled in respect of such
delivery, and shall promptly return to Escrow Agent, for escrow, a new share
certificate (which shall hereafter be considered the "Share Certificate")
representing a number of shares of DPII Common Stock reflecting the reduction
for the number of cancelled shares. Axys hereby authorizes the cancellation of
shares to the extent and in the manner expressly authorized by this Agreement.
For the purposes of this Agreement, the "Fair Market Value" per share of DPII
Common Stock shall be determined as follows:
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE> 2
(i) If traded on a securities exchange or through
NASDAQ-NMS, the Fair Market Value shall be deemed to be the average of the
closing price of such share on such exchange over the twenty (20) day period
ending three (3) days prior to the date on which the Escrow Agent is obligated
to deliver any portion of the Escrowed Consideration hereunder; and
(ii) If there is no active public market, the Fair
Market Value shall be deemed to be the per share price at which the Company sold
shares of its capital stock in its most recent equity financing negotiated on an
arms'-length basis.
(b) If at any time prior to the first anniversary of the date
hereof DPII shall claim that it is entitled to payment of all or a portion of
the Escrowed Consideration as a result of any Covered Claim, DPII shall give
notice of such Covered Claim (the "Notice of Covered Claim") to the Escrow
Agent. The Notice of Covered Claim shall describe with reasonable specificity
the event or circumstance giving rise to the Covered Claim and specifying the
amount of the Escrowed Consideration which should be released to satisfy such
Covered Claims. Upon Escrow Agent's receipt of a Notice of Covered Claim from
DPII, Escrow Agent shall promptly deliver a copy thereof to Axys. Within fifteen
(15) business days after delivery by Escrow Agent of a copy of such Notice of
Covered Claim to Axys, Axys may deliver to Escrow Agent a notice (the "Notice of
Dispute") disputing the request for payment of Escrowed Consideration stated in
the Notice of Covered Claim. The Notice of Dispute shall specify the amount
being disputed (the "Disputed Funds"), describing with reasonable specificity
the reasons for such dispute. If Escrow Agent has not received a Notice of
Dispute prior to the expiration of the 15-day period referred to above, then
upon expiration of such 15-day period, the Escrow Agent shall pay to DPII,
within three business days, as provided in Section 4(a) above, the full amount
of the Escrowed Consideration requested in the Notice of Covered Claim. If
Escrow Agent has received a Notice of Dispute which disputes in part the request
for payment of Escrowed Consideration stated in the Notice of Covered Claim,
then Escrow Agent shall pay to DPII, within three business days, as provided in
Section 4(a) above, the amount of Escrowed Consideration requested in the Notice
of Covered Claim which is not Disputed Funds.
(c) If Escrow Agent receives a Notice of Dispute from Axys,
Escrow Agent shall promptly deliver a copy of the Notice of Dispute to DPII, and
shall not deliver the Disputed Funds (i.e., the Share Certificate in respect of
the Disputed Funds) to DPII until Escrow Agent shall have received one of the
following:
i. A certified copy of an order, decree or judgment
issued or rendered by a court of competent jurisdiction, which order, decree or
judgment shall be accompanied by a legal opinion of counsel to DPII that such
judgment has been finally affirmed on appeal or which by lapse of time or
otherwise is no longer subject to appeal (a "Final Decision") with respect to
the Notice of Covered Claim which is the subject of the Notice of Dispute; or
ii. A joint written direction executed by DPII and Axys
directing the distribution of the relevant portion of the Escrowed
Consideration.
2
<PAGE> 3
Upon receipt of either (i) or (ii) above, Escrow Agent shall deliver the
relevant portion of the Escrowed Consideration, within three business days, by
delivery of the Share Certificate to DPII in accordance with the terms of such
Final Decision or joint direction, as the case may be.
(d) On the first anniversary of the date hereof, any Escrowed
Consideration which is not Disputed Funds or the subject of an unresolved Notice
of Covered Claim shall be paid to Axys. To effect this, Escrow Agent shall
deliver the Share Certificate to DPII, and DPII shall issue and deliver to Axys
as provided in Section 6(b) below a share certificate for the shares which are
not Disputed Funds and are not the subject of an unresolved Notice of Covered
Claim; and DPII shall issue and deliver to the Escrow Agent, for escrow, a new
Share Certificate in Axys' name for the remainder, if any, of the shares.
5. Investment of Escrowed Consideration. Escrow Agent shall invest any
cash dividends on or other cash processed of the Escrowed Consideration, from
time to time, in investments jointly designated in writing by DPII and Axys or,
in the absence of such designation, in a money-market fund. The investments of
Escrowed Consideration may be executed by Escrow Agent's own investment
department. The interest and investment proceeds of all investments made
hereunder shall be retained as part of the escrow as Escrowed Consideration and
distributed as provided herein with respect to the Escrowed Consideration.
Escrow Agent shall deliver monthly statements to DPII and Axys in accordance
with Escrow Agent's regular practice; the parties hereby agree that, except for
the foregoing, Escrow Agent shall have no obligations to monitor, or advise the
parties with respect to, such investments.
6. Termination of Escrow.
(a) Except as set forth in Section 6(b), this Agreement shall
terminate upon the earliest of (i) the receipt by Escrow Agent of written notice
of termination executed by both DPII and Axys directing the distribution of all
property then held by Escrow Agent under and pursuant to the Agreement, (ii)
when all Escrowed Consideration (and all interest and investments in which any
of the Escrowed Consideration shall have been invested) shall have been
distributed by Escrow Agent in accordance with the terms of this Agreement; or
(iii) the first anniversary of the Closing Date.
(b) Notwithstanding Section 6(a), in the event that upon the
first anniversary of the Closing Date, there remains in the escrow, any portion
of the Escrowed Consideration which is Disputed Funds or the subject of an
unresolved Notice of Covered Claim, then this Agreement shall not terminate on
such first anniversary with respect to such funds and shall continue until the
resolution of the dispute pursuant to Section 4(b). Any Escrowed Consideration
which is not Disputed Funds or subject to an unresolved Notice of Covered Claim
shall be delivered to Axys within three business days of the termination of the
Agreement. To effect this, Escrow Agent shall deliver the Share Certificate to
DPII, and DPII shall issue and deliver to Axys a share certificate for the
shares which are not Disputed Funds and are not the subject of an unresolved
Notice of Covered Claim; and DPII shall issue and deliver to the Escrow Agent,
for escrow, a new Share Certificate in Axys' name for the remainder of the
shares.
3
<PAGE> 4
(c) Escrow Agent is authorized to liquidate the
securities (other than DPII shares) held hereunder to the extent necessary to
distribute the Escrowed Consideration as provided herein and shall have no
liability for any loss arising out of any such liquidation.
7. Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission with answer back confirmation or mailed
(first class, postage prepaid) or by overnight courier to the parties at the
addresses or facsimile numbers set forth below such party's signature to this
Agreement. All such notices, requests and other communications will (i) if
delivered personally or by overnight courier to the address as provided in this
Section, be deemed given upon delivery, (ii) if delivered by facsimile
transmission to the facsimile number as provided in this Section, be deemed
given upon sending, and (iii) if delivered by mail in the manner described above
to the address as provided in this Section, be deemed given two business days
after mailing (in each case regardless of whether such notice, request or other
communication is received by any other person to whom a copy of such notice,
request or other communication is to be delivered pursuant to this Section). Any
party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other parties hereto.
8. Escrow Agent's Liability. Escrow Agent undertakes to perform such
duties and only such duties as are specifically set forth in this Agreement, and
no implied covenants or obligations shall be read into this Agreement against
Escrow Agent. In the absence of bad faith, gross negligence or willful
misconduct on its part, Escrow Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to Escrow Agent. Escrow Agent may act upon
any instrument, certificate, opinion or other writing believed by it in good
faith and without gross negligence to be genuine, and shall not be liable in
connection with the performance by it of its duties pursuant to the provisions
of the Agreement, except for its own bad faith, gross negligence or willful
misconduct. Escrow Agent may consult with counsel of its own choice and shall
have full and complete authorization and protection for any action taken,
suffered or omitted by it hereunder in good faith and in accordance with the
opinion of such counsel. Escrow Agent may execute powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys.
9. Indemnification of Escrow Agent. Axys and DPII shall jointly and
severally indemnify and hold harmless Escrow Agent (and any successor Escrow
Agent) for any loss, liability or expense incurred without gross negligence,
willful misconduct or bad faith on the part of Escrow Agent, arising out of or
in connection with its entering into the Agreement, carrying out its duties
hereunder and accepting the Escrowed Consideration, including the costs and
expenses of defending itself against any claim of liability in connection with
the exercise or performance of any of its powers or duties hereunder (including
reasonable fees, expenses and disbursements of its counsel). Axys and DPII agree
to promptly reimburse the other party for any payments to Escrow Agent under
this Section 9 as necessary in order to ensure that all such payments are shared
equally by Axys and DPII.
10. Escrow Agent to Follow Instructions of DPII and Axys.
Notwithstanding any provision contained herein to the contrary, Escrow Agent
shall at any time and from time to time
4
<PAGE> 5
take such action hereunder with respect to the Escrowed Consideration (and the
investments in which any of the Escrowed Consideration shall have been invested)
as shall be directed in writing by both DPII and Axys.
11. Resignation of Escrow Agent. Escrow Agent, or any successor, may
resign at any time upon giving written notice, thirty (30) days before such
resignation shall take effect, to DPII and Axys. In the event Escrow Agent shall
resign or be unable to serve, it shall be succeeded by such bank or trust
company as DPII and Axys shall appoint, or if no appointment is made, by a bank
or trust company appointed by a court of competent jurisdiction. In the absence
of a successor so appointed by DPII and Axys, Escrow Agent may petition such a
court to appoint a successor escrow agent. The resigning escrow agent shall
transfer to its successor all money, securities and investments then held
subject to this escrow and all pending notices, instructions and directions then
in its possession, and shall thereupon be discharged, and the successor shall
thereupon succeed to all the rights, powers and duties and shall assume all of
the obligations of the resigning escrow agent.
12. Escrow Agent's Fees.
(a) Escrow Agent shall be entitled to a fee for services
rendered according to the fee schedule attached hereto. One half of such fees
shall be paid by Axys and one-half of such fees shall be paid by DPII.
(b) In case Escrow Agent becomes involved in litigation on
account of the property deposited hereunder or this Agreement, it shall have the
right to retain counsel. One half of any and all costs, attorneys' fees,
charges, disbursements, and expenses in connection with such litigation shall be
paid by Axys and one-half of such fees shall be paid by DPII.
(c) Axys and DPII agree to promptly reimburse the other party
for any payments to Escrow Agent under this Section 12 in order to ensure that
all such payments are shared equally by Axys and DPII.
13. Escrow Agent's Reaction to Disputes.
(a) In case the Escrowed Consideration shall be attached,
garnished, or levied upon any court order, or the delivery thereof shall be
stayed or enjoined by an order of court, or any order, judgment or decree shall
be made or entered by any court affecting the property deposited under this
Agreement, or any part thereof, Escrow Agent is hereby expressly authorized in
its sole direction, to obey and comply with all writs, orders or decrees so
entered or issued, which it is advised by legal counsel of its own choosing is
binding upon it, whether with or without jurisdiction, and in case Escrow Agent
obeys or complies with any such writ, order or decree it shall not be liable to
any of the parties hereto or to any other person, firm or corporation, by reason
of such compliance notwithstanding such writ, order or decree is subsequently
reversed, modified, annulled, set aside or vacated.
(b) In case conflicting demands are made upon it for any
situation not addressed in this Agreement, Escrow Agent may withhold performance
of this escrow with respect to matters related to such conflicting demands until
such time as said conflicting
5
<PAGE> 6
demands shall have been withdrawn or the rights of the respective parties shall
have been settled by court adjudication, arbitration, joint order or otherwise.
14. Assignment. The obligations imposed and the rights conferred by this
Escrow Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
15. Governing Law, Consent to Jurisdiction and Forum Selection. This
Indemnity Escrow Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of law. The parties hereto agree that all actions or proceedings
arising in connection with this Agreement (as to proceedings initiated by Axys)
shall be initiated and tried exclusively in the State and Federal courts located
in the County of San Diego, State of California. The parties hereto agree that
all actions or proceedings arising in connection with this Agreement (as to
proceedings initiated by DPII or Escrow Agent) shall be initiated and tried
exclusively in the State and Federal courts located in the County of San
Francisco, State of California. The aforementioned choice of venue is intended
by the parties to be mandatory and not permissive in nature, thereby precluding
the possibility of litigation between the parties with respect to or arising out
of this Agreement in any jurisdiction other than that specified in this Section
15. Each party hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any proceeding brought in accordance with this paragraph, and stipulates that
the State and Federal courts located in the County of San Diego, State of
California (as to proceedings initiated by Axys) or in the County of San
Francisco, State of California (as to proceedings initiated by DPII or Escrow
Agent) shall have in personam jurisdiction and venue over each of them for the
purposes of litigating any dispute, controversy or proceeding arising out of or
related to this Agreement. Each party hereby authorizes and accepts service of
process sufficient for personal jurisdiction in any action against it as
contemplated by this Section 15 by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in this Agreement, or in the manner set forth in Section 7 of this
Agreement for the giving of notice. Any final judgment rendered against a party
in any action or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner provided by
law.
16. Entire Agreement. This Agreement, together with the Merger
Agreement, with respect to which the Escrow Agent is not a party (including the
schedules and exhibits thereto and the other agreements contemplated thereby),
contains the entire agreement between the parties hereto with respect to the
transactions contemplated herein.
17. Amendment. This Agreement cannot be terminated, altered or amended
except pursuant to an instrument in writing signed by DPII, Axys and Escrow
Agent.
18. Merger, Conversion, Consolidation or Succession to Business.
(a) Any corporation into which Escrow Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which Escrow Agent shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of Escrow Agent, shall be the successor of
6
<PAGE> 7
Escrow Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
(b) Any corporation into which DPII or Axys may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which DPII or Axys shall be a
party, shall be the successor of DPII or Axys hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
19. Enforceability. If any provision hereof shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other provision of this Indemnity Escrow Agreement, and the Agreement shall
be carried out as if any such invalid or unenforceable provision were not
contained herein.
20. Distributions. Distributions of the Escrowed Consideration to DPII
pursuant to this Agreement shall be deemed to be reductions of the merger
consideration paid under the Merger Agreement.
21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Indemnity Escrow
Agreement to be signed as of the date first above written.
AXYS PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ William T. Newell
------------------------------------
Name: William T. Newell
Title: Senior Vice President
Address: 180 Kimball Way
South San Francisco, CA 94080
Attn: Chief Executive Officer
Fax: (650) 829-1067
DISCOVERY PARTNERS INTERNATIONAL, INC.,
a California corporation
By: /s/ Riccardo Pigliucci
------------------------------------
Name: Ricardo Pigliucci
Title: Chairman and CEO
Address: 9640 Towne Centre Drive
San Diego, CA 92121
Attn: Chief Executive Officer
Fax: (858) 455-8088
ESCROW AGENT: U.S. TRUST COMPANY NATIONAL ASSOCIATION
By: /s/ M. Deborah Gibbons
------------------------------------
Name: M. Deborah Gibbons
Title: Vice President
Address: 515 South Flower, Suite 2700
Los Angeles, CA 90071
[SIGNATURE PAGE TO INDEMNITY ESCROW AGREEMENT]
8
<PAGE> 1
EXHIBIT 10.10
FIRST AMENDMENT TO SUBLEASE
This FIRST AMENDMENT TO LEASE (this "Amendment") is dated as of this 28th
day of April, 2000, by and between AXYS PHARMACEUTICALS, INC., a Delaware
corporation ("Sublandlord"), and AXYS ADVANCED TECHNOLOGIES, INC., a Delaware
corporation ("Subtenant").
RECITALS
A. Sublandlord and Subtenant entered into a Sublease dated January 1, 2000
(the "Sublease"), for premises within a building with a street address of 385
Oyster Point Blvd., South San Francisco, California, and more particularly
described in the Sublease;
B. Sublandlord and Subtenant now desire to amend the Sublease on the terms
and conditions set forth herein. Capitalized terms used in this Amendment and
not otherwise defined shall have the meanings assigned to them in the Sublease.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublandlord and Subtenant hereby
agree as follows:
(a) LEASE AMENDMENT. Commencing on April 28, 2000, the Sublease is amended as
follows:
(a) SUBLEASED PREMISES: The last sentence of Section 1.1(a) is
hereby deleted in its entirety.
(b) ACCEPTANCE OF SUBLEASED PREMISES: The following words are hereby
inserted at the beginning of the third sentence of Section 2.2: "Except as
otherwise set forth in that certain Agreement and Plan of Merger by and among
Discovery Partners International, Inc., a California corporation, DPII Newco,
LLC, a Delaware limited liability company and a wholly-owned subsidiary of
Discovery Partners International, Inc., Axys Advanced Technologies, Inc., a
Delaware corporation, and Axys Pharmaceuticals, Inc., a Delaware corporation
dated as of April 11, 2000 (the "Merger Agreement"),".
(c) INCORPORATION BY REFERENCE; ASSUMPTION. The first sentence of
Section 3.1 is hereby deleted and replaced, in its entirety, with the following:
"All of the Sections of the Lease are incorporated into this Sublease as if
fully set forth in this Sublease except for the following: 1, 2.1, 3.1, 3.3,
4.1, 5, 7, 13.4, 38, 29, First Addendum Sections 1, 13, and 20."
(d) COMMON AREA DEFINITION: The third sentence of Section 3.8(a)
is hereby deleted in its entirety and replaced with the following: "Subject to
the prior written consent of Landlord and Sublandlord and the terms and
conditions of the Lease, Subtenant may, at Subtenant's sole cost and expense, be
allowed to install, maintain and operate a small communications antenna on the
roof of the Building and other rooftop communications equipment which are
permitted by the Lease, at location(s) and in accordance with plans approved by
Landlord and Sublandlord; provided that Subtenant shall be obligated to pay for
any additional cost incurred by Sublandlord arising from such work
notwithstanding Landlord's and Sublandlord's approval thereof, including but not
limited to, any violation of the roof warranty for the Building."
(e) BASE RENT: The following sentence is hereby added to the end
of Section 4.1: "Should Sublandlord fail to make any monetary payments to
Landlord that constitute a default under the Lease ("Default
<PAGE> 2
Payments"), Subtenant may make such Default Payment(s) and offset such paid
Default Payment against Rent, as defined herein."
(f) USE: The words "and Sublandlord's" is hereby inserted after the first
appearance of the word "Subtenant" in Section 6.1(b).
(g) UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS: The last sentence
of Section 7.3(b) is hereby deleted in its entirety.
(h) INDEMNITY: The following is hereby added to the lease as new section
8.6(a): "Sublandlord will indemnify, defend (by counsel acceptable to Subtenant
in its reasonable discretion), protect and hold Subtenant harmless from and
against any and all liabilities, claims, demands, losses, damages, costs and
expenses (including attorneys' fees) arising out of or relating to (i)
Sublandlord's and its agents', employees' and invitees' use of the Subleased
Premises and any negligent acts or willful misconduct in their use or occupancy
of the Building other than the Subleased Premises, (ii) Sublandlord's breach or
default under this Sublease, or (iii) Hazardous Materials brought into the
Building by or for Sublandlord, or any such Hazardous Materials shipped for
storage, treatment or disposal from the Building by or for Sublandlord. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any act on or proceeding involved therein, and whether or not (in the
case of claims made against Subtenant) litigated and/or reduced to judgment. In
case any action or proceeding is brought against Subtenant by reason of any of
the foregoing matters, Sublandlord, upon notice from Subtenant, shall defend the
same at Sublandlord's expense by counsel reasonably satisfactory to Subtenant
and Subtenant shall cooperate with Sublandlord in such defense. Subtenant need
not have first paid any such claim in order to be so indemnified.
(i) ASSIGNMENT AND SUBLETTING: The following is hereby inserted at the end
of Section 9: "and; (iv) any other reasonable out-of-pocket cost incurred as a
result of the assignment or subletting."
(j) SUBTENANTS'S SERVICES TO SUBLANDLORD: The second sentence of Section
10(a) is hereby deleted in its entirety and replaced with the following: "Either
Subtenant or Sublandlord may terminate such services within ninety (90) days
prior written notice by the party electing to receive the services."
(k) CONFIDENTIALITY: Section 17 of the Sublease is hereby deleted in its
entirety and replaced with the following: "Unless otherwise agreed to in writing
by Sublandlord and Subtenant, each party shall keep confidential all terms,
conditions, documents, and other information provided to, or generated by the
other party, relating to this Sublease in accordance with the terms and
conditions of the Merger Agreement."
(l) ATTORNEYS FEES: The following is hereby added to the end of Section
20.1: "The prevailing party shall be determined by the trier of fact based upon
an assessment of which party's major arguments or positions taken in the
proceedings could fairly be said to have prevailed over the other party's major
arguments or positions on major disputed issues ("PREVAILING PARTY"). The
Prevailing Party, for the purpose of any settlement, dismissal or summary
judgment, shall be the party receiving substantially the relief requested. For
the purposes of this section, attorneys' fees shall include, without limitation,
fees incurred in the following: (1) post-judgment motions; (2) contempt
proceedings; (3) garnishment, levy, and debtor and third party examinations; (4)
discovery; (5) bankruptcy litigation; and (6) enforcement of the indemnity
provisions contained herein. This Section is intended to be expressly severable
from the other provisions of this Agreement, is intended to survive any judgment
and is not to be deemed merged into the judgment.
(m) WAIVER OF JURY TRIAL AND RIGHT TO ARBITRATE: The following is hereby
added to the Sublease as new section 21: "SUBLANDLORD AND SUBTENANT EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE
WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON
2
<PAGE> 3
ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE SUBLEASE
AS AMENDED, SUBTENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF
INJURY OR DAMAGE. SHOULD A DISPUTE ARISE BETWEEN THE PARTIES REGARDING ANY
MATTER DESCRIBED ABOVE, THEN EXCEPT WITH RESPECT TO ACTIONS FOR UNLAWFUL OR
FORCIBLE DETAINER EITHER PARTY MAY CAUSE THE DISPUTE TO BE SUBMITTED TO
JAMS/ENDISPUTE OR ITS SUCCESSOR ("JAMS") IN SAN FRANCISCO, CALIFORNIA, FOR
BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR. HOWEVER, EACH PARTY RESERVES THE
RIGHT TO SEEK A PROVISIONAL REMEDY BY JUDICIAL ACTION. NO ARBITRATION ELECTION
BY EITHER PARTY PURSUANT TO THIS SUBSECTION SHALL BE EFFECTIVE IF MADE LATER
THAN THIRTY (30) DAYS FOLLOWING SERVICE OF A JUDICIAL SUMMONS AND COMPLAINT BY
OR UPON SUCH PARTY CONCERNING THE DISPUTE. THE ARBITRATION SHALL BE CONDUCTED IN
ACCORDANCE WITH THE RULES OF PRACTICE AND PROCEDURE OF JAMS AND OTHERWISE
PURSUANT TO THE CALIFORNIA ARBITRATION ACT (CODE OF CIVIL PROCEDURE SECTIONS
1280 ET SEQ.). NOTWITHSTANDING THE FOREGOING, THE ARBITRATOR IS SPECIFICALLY
DIRECTED TO LIMIT DISCOVERY TO THAT WHICH IS ESSENTIAL TO THE EFFECTIVE
PROSECUTION OR DEFENSE OF THE ACTION, AND IN NO EVENT SHALL SUCH DISCOVERY BY
EITHER PARTY INCLUDE MORE THAN ONE NON-EXPERT WITNESS DEPOSITION UNLESS BOTH
PARTIES OTHERWISE AGREE. THE ARBITRATOR SHALL APPORTION THE COSTS OF THE
ARBITRATION, TOGETHER WITH THE ATTORNEYS' FEES OF THE PARTIES, IN THE MANNER
DEEMED EQUITABLE BY THE ARBITRATOR, IT BEING THE INTENTION OF THE PARTIES THAT
THE PREVAILING PARTY ORDINARILY BE ENTITLED TO RECOVER ITS REASONABLE COSTS AND
FEES. JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY
COURT HAVING JURISDICTION.
As indicated by our initials below, we have read and understand the foregoing
and agree to submit disputes arising out of the matters subject to arbitration
pursuant to this Sublease to neutral, binding arbitration:
Sublandlord: WJN Subtenant: WJN
------- -----
(b) RATIFICATION. The Sublease, as amended by this Amendment, is hereby ratified
by Sublandlord and Subtenant and Sublandlord and Subtenant hereby agree that
the Sublease, as so amended, shall continue in full force and effect.
(c) MISCELLANEOUS. MISCELLANEOUS.
(a) VOLUNTARY AGREEMENT. The parties have read this Amendment and on
the advice of counsel they have freely and voluntarily entered into this
Amendment.
(b) ATTORNEY'S FEES. If either party commences an action against the
other party arising out of or in connection with this Amendment, the prevailing
party shall be entitled to recover from the losing party reasonable attorney's
fees and costs of suit.
(c) SUCCESSORS. This Amendment shall be binding on and inure to the
benefit of the parties and their successors.
(d) COUNTERPARTS. This Amendment may be signed in two or more
counterparts. When at least one such counterpart has been signed by each party,
this Amendment shall be deemed to have been fully executed, each counterpart
shall be deemed to be an original, and all counterparts shall be deemed to be
one and the same agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this
Amendment as of the date first written above.
SUBLANDLORD:
AXYS PHARMACEUTICALS, INC., a Delaware corporation
By: /s/ William J. Newell
--------------------------------
Its: Senior Vice President
--------------------------------
SUBTENANT:
AXYS ADVANCED TECHNOLOGIES, INC., a
Delaware corporation
By:/s/ William J. Newell
--------------------------------
Its:Secretary
--------------------------------
4
<PAGE> 1
Exhibit 10.12
STANDSTILL AGREEMENT
This STANDSTILL AGREEMENT (this "Agreement") is made as of April 28,
2000 (the "Effective Date") by and between Discovery Partners International,
Inc., a California corporation ("DPII"), and Axys Pharmaceuticals, Inc., a
Delaware corporation ("Axys").
RECITALS
WHEREAS, DPII, DPII Newco, LLC, a Delaware limited liability company
("Merger Sub"), Axys and Axys Advanced Technologies, Inc., a Delaware
corporation ("AAT") have entered into that certain Agreement and Plan of Merger,
dated as of April 11, 2000 (the "Merger Agreement"), pursuant to which Merger
Sub is being merged with and into AAT (the "Merger") with the consequence that
AAT will become a wholly-owned subsidiary of DPII (capitalized terms used herein
and not otherwise defined herein shall have the meanings given such terms in the
Merger Agreement);
WHEREAS, the Merger Agreement requires that Axys and DPII enter into
this Agreement as a condition to consummate the Merger and to consummate the
other transactions contemplated by the Merger Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement, and in connection with the Closing under the Merger Agreement,
the parties hereto agree as follows:
1. Restricted Period. For a period ("Restricted Period") commencing with
the date of this Agreement and ending on the later of the date Axys, together
with all members of any "group" of which it is a member, first holds less than
5% of the then-outstanding Common Stock of the Company or the 10th anniversary
of the date of this Agreement, neither Axys nor any of its Representatives (as
defined below) on behalf of or as part of a "group" with Axys shall, without the
prior written consent of DPII upon express authorization by DPII's Board of
Directors:
(a) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or direct or
indirect rights to acquire any voting securities of DPII or any subsidiary of
DPII, or of any successor to or person in control of DPII;
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" of shareholder written consents or of "proxies" to vote (as such
terms are used in the rules of the Securities and Exchange Commission ("SEC")),
or seek to advise or influence any person or entity with respect to the voting
of any voting securities of DPII;
<PAGE> 2
(c) make any public announcement with respect to, or submit a
proposal for, or offer of (with or without conditions) any extraordinary
transaction involving DPII or any of its securities or assets (other than a
disposition of its DPII shares);
(d) form, join or in any way participate in a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), in connection with any of the foregoing or the holding or voting of DPII
voting securities;
(e) otherwise act or seek to control or influence the management,
Board of Directors or policies of DPII, except solely through the nomination of
the DPII Directors which this Agreement entitles it to;
(f) take any action that could reasonably be expected to require DPII
to make a public announcement regarding the possibility of any of the events
described in clauses (a) through (e) above; or
(g) publicly request DPII or any of its Representatives, directly or
indirectly, to amend or waive any provision of this Section 1.
During the Restricted Period, Axys shall promptly advise DPII of any inquiry or
proposal made to it with respect to any of the foregoing.
Notwithstanding anything in this Agreement to the contrary, nothing in this
Agreement shall prevent Axys from exercising, during any time before the first
day any DPII stock is registered under the Exchange Act, any of Axys' express
rights under DPII's Amended and Restated Shareholders' Agreement dated as of
April 7, 2000 and/or DPII's Amended and Restated Investors' Rights Agreement
dated as of April 7, 2000, in each case as amended through the exercise of such
rights.
2. Definitions. For purposes of this Agreement, (i) "Representative"
shall mean, as to any person, its affiliated (within the meaning of SEC Rule
405) companies and its and their directors, officers, employees, agents and
advisors (including, without limitation, financial advisors, attorneys and
accountants); (ii) "person" shall be broadly interpreted to include, without
limitation, any corporation, company, partnership, other entity or individual;
(iii) "voting securities" shall mean, with respect to DPII, at any time shares
of any class of capital stock of DPII which are then entitled to vote generally
in the election of directors.
3. Securities Laws. Axys is aware, and will advise its Representatives
who are informed of the matters that are the subject of this Agreement, of the
restrictions imposed by the United States securities laws on the purchase or
sale of securities by any person who has received material, non-public
information from the issuer of such securities and on the communication of such
information to any other person when it is reasonably foreseeable that such
other person may purchase or sell such securities in reliance upon such
information.
4. Legends. All DPII share certificates owned by Axys shall be imprinted
with a legend stating that the shares are subject to this Agreement. Such shares
shall also, if transferred to anyone other than to a Permitted Transferee,
remain subject to this Agreement, and this Agreement shall be binding upon such
transferee and such transferee's share certificate
2
<PAGE> 3
representing such shares shall be imprinted with the same legend. Such legend
shall be removed as to shares which are sold to a Permitted Transferee. A
"Permitted Transferee" is one who (a) acquires such shares in a Rule 144
Transaction or (b) is not a person affiliated with Axys or a member of a "group"
which includes Axys and who acquires such shares in a Rule 144(k) or Rule 144A
transaction or pursuant to an effective resale registration statement, or (c) is
not a person affiliated with Axys or a member of a "group" which includes Axys,
and who acquires such shares in a Section 4(1) or Section 4(1 1/2) transaction
which does not Exceed the 5% Level, and is not the subject of a Schedule 13D or
13G report showing at the date of the transfer of shares by Axys to such
transferee current beneficial ownership of at least 5% of DPII's Common Stock by
such acquirer or any "group" of which such acquirer is a member. A transaction
"Exceeds the 5% Level" if immediately after the transaction the acquirer,
together with all other members of any "group" of which it is a member, will
have acquired from Axys (including such transaction and also all previous
transactions involving such acquirer and/or any member of the "group") more than
5% of the outstanding Common Stock of DPII (calculated as of the date of the
transaction which is being tested).
5. Director Elections. DPII agrees to include on its management slate of
Director nominees, at each annual meeting of shareholders held while any DPII
stock is registered under the Exchange Act, a number of persons designated by
Axys as shall equal the number of Directors, if any, on DPII's Board of
Directors which Axys could have elected solely on its own with the DPII shares
originally owned by Axys as of April 28, 2000 and still then owned of record by
it if cumulative voting were in effect; provided, that if such calculation would
enable Axys to designate a number of nominees equal to one less than the number
which would constitute a majority of the Board of Directors, Axys shall be
entitled to designate one nominee fewer than what the calculation would have so
indicated. Also, if DPII has a staggered Board of Directors, this Section shall
not be applied literally, but instead shall be applied in a reasonable manner to
reflect the parties' intentions with respect to the Board as a whole even though
not all the Board seats are up for election each year. Axys agrees always to
vote for, and to use its reasonable efforts to cause its Representatives to vote
for, the entire management slate of Director nominees and not for any other
persons.
6. Miscellaneous.
(a) Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission with answer back confirmation or mailed
(first class, postage prepaid) or by overnight courier to the parties at the
following addresses or facsimile numbers:
If to Axys, to:
Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, CA 94080
Facsimile No.: (650) 829-1067
Attention: John Walker, Chairman and Chief Executive Officer
with copy to:
3
<PAGE> 4
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile No.: (650) 857-6663
Attention: Alan C. Mendelson, Esq.
If to DPII, to:
Discovery Partners International, Inc.
9640 Towne Centre Drive
San Diego, CA 92121
Facsimile No.: (858) 455-8088
Attention: Riccardo Pigliucci,
Chief Executive Officer and President
with copy to:
Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Facsimile No.: (858) 720-2555
Attention: Hayden J. Trubitt, Esq.
All such notices, requests and other communications will (i) if delivered
personally or by overnight courier to the address as provided in this Section
4(a), be deemed given upon delivery, (ii) if delivered by facsimile transmission
to the facsimile number as provided in this Section 4(a), be deemed given upon
sending, and (iii) if delivered by mail in the manner described above to the
address as provided in this Section 4(a), be deemed given two business days
after mailing (in each case regardless of whether such notice, request or other
communication is received by any other person to whom a copy of such notice,
request or other communication is to be delivered pursuant to this Section). Any
party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other parties hereto.
(b) Entire Agreement. This Agreement, the Merger Agreement (and all
exhibits and schedules attached thereto) and all other documents delivered in
connection herewith supersede all prior discussions and agreements among the
parties with respect to the subject matter hereof and thereof and contain the
sole and entire agreement among the parties hereto with respect thereto.
(c) Waiver. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party hereto of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by law or otherwise afforded, will be cumulative
and not alternative.
4
<PAGE> 5
(d) Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
(e) Third Parties. Axys Pharmaceuticals, Inc. shall be responsible
for any violation of the provisions of this Agreement by any present or future
affiliate (as defined in SEC Rule 405) of Axys Pharmaceuticals, Inc., excluding
AAT.
(f) Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
(g) Severability. All provisions contained herein are severable and
in the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such provision
shall be excised from this Agreement; provided, however, that if the reason for
such invalidity or unenforceability is that the affected provision calls for an
excessive amount of time or money or area or an excessive breadth or scope of
coverage or otherwise requires an excessive degree of any thing or imposes any
excessively onerous restriction or requirement, the affected provision shall not
be excised but instead shall be construed as if it were written so as to call
only for the amount of money, time, area, breadth, scope and/or other thing,
restriction or requirement (but nonetheless for the maximum possible amount of
money, time, area, breadth, scope and/or other thing, restriction or
requirement) which would render such provision valid and enforceable, all so as
to effectuate to the greatest possible extent the parties' expressed intent; and
in every case the remainder of this Agreement shall not be affected thereby and
shall remain valid and enforceable, as if such excised or affected provision
were not contained herein.
(h) Governing Law, Consent to Jurisdiction and Forum Selection. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts executed and performed in such
State, without giving effect to conflicts of laws principles. The parties hereto
agree that all actions or proceedings arising in connection with this Agreement
(as to proceedings initiated by Axys) shall be initiated and tried exclusively
in the State and Federal courts located in the County of San Diego, State of
California. The parties hereto agree that all actions or proceedings arising in
connection with this Agreement (as to proceedings initiated by DPII) shall be
initiated and tried exclusively in the State and Federal courts located in the
County of San Francisco, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this Section 4(h). Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the County of San Diego,
State of California (as to proceedings initiated by Axys) or in the County of
San Francisco, State of California (as to proceedings initiated by DPII) shall
have in personam jurisdiction and venue over each of them for the purposes of
litigating any dispute, controversy or proceeding arising out of or related to
this Agreement. Each party hereby authorizes and accepts service of process
sufficient for personal jurisdiction in any action against it as contemplated by
this Section 4(h) by registered or certified mail, return receipt requested,
postage prepaid, to its address for the giving of notices as set forth in this
Agreement, or in the
5
<PAGE> 6
manner set forth in Section 4(a) of this Agreement for the giving of notice. Any
final judgment rendered against a party in any action or proceeding shall be
conclusive as to the subject of such final judgment and may be enforced in other
jurisdictions in any manner provided by law
(i) Attorneys Fees. In the event suit or action is brought by any
party under this Agreement to enforce or construe any of its terms, the
prevailing party shall be entitled to recover, in addition to all other amounts
and relief, its reasonable costs and attorneys fees incurred at and in
preparation for arbitration, trial, appeal and review, such sum to be set by the
arbitrator or court before which the matter is heard.
(j) Construction. No provision of this Agreement shall be construed
in favor of or against any party on the ground that such party or its counsel
drafted the provision. This Agreement shall at all times be construed so as to
carry out the purposes stated herein.
(k) Counterparts. This Agreement may be executed in counterparts and
by facsimile, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(l) Reincorporation. Without limitation on any other rights of
assignment, the parties acknowledge that (A) if DPII reincorporates in Delaware
this Agreement shall be assigned to the new Delaware corporation and the rights
and obligations of the parties shall persist as if all references herein to
"DPII" were references to such Delaware corporation; and (B) Axys shall be
allowed to make a bona fide pledge of its DPII Common Stock and Axys' rights
under this Agreement may be assigned, on an indivisible basis, to any person if
both the following conditions apply: (i) the assignment to such person is part
of the enforcement against Axys' shares of DPII Common Stock of a security
interest which Axys had, via a bona fide pledge, granted to a lender, and (ii)
the assignee shall have executed a written agreement, reasonably satisfactory in
form and substance to DPII, pursuant to which such person becomes a party to
this Agreement (as then amended to date) and agrees to be bound by all the
burdens thereof as if such assignee was "Axys" thereunder.
6
<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
DISCOVERY PARTNERS INTERNATIONAL, INC.,
a California corporation
By: /s/ Riccardo Pigliucci
---------------------------------------
Name: Riccardo Pigliucci
------------------------------------
Title: Chairman and CEO
-----------------------------------
AXYS PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ William J. Newell
---------------------------------------
Name: William J. Newell
------------------------------------
Title: Senior Vice President
-----------------------------------
[SIGNATURE PAGE TO STANDSTILL AGREEMENT]
<PAGE> 1
Shareholders Agreement
EXHIBIT 10.13
SHAREHOLDERS AGREEMENT
BETWEEN
<TABLE>
<S> <C> <C>
1. Dr. Heinrich Zinsli
Elblingstrasse 10
4142 Munchenstein, Switzerland
PARTY 1
and
2. Dr. Ernst Burgisser
Marktgasse 106
4310 Rheinfelden, Switzerland
PARTY 2
and
3. Dr. Helmut Kessmann
Talweg 34
D-79540 Lorrach, Germany
PARTY 3
as well as
4. Discovery Partners International, Inc.
11149 North Torrey Pines Road
La Jolla, California 92037, USA
PARTY 4
</TABLE>
(hereinafter called "the Contracting Parties", "the Parties" or "the
Shareholders")
concerning Discovery Technologies Ltd, Gewerbestrasse 16, Allschwil, Switzerland
(hereinafter called "the Company")
-----------------
RECITALS
The Company disposes of an issued Voting Share Capital of CHF 500,000
(five-hundred thousand Swiss Francs) divided into 2,000 registered shares with a
nominal value of CHF 100 each and 300 registered shares with a nominal value of
CHF 1,000 each and a Non-Voting Capital of CHF 1,000,000 divided into 1,000
registered Non-Voting Shares with a nominal value of CHF 1,000 each.
<PAGE> 2
Shareholders Agreement -2-
After the sale of 40% of the Non-Voting Shares (40% of the Votes and 40% of the
Voting nominal capital) to Discovery Partners International based on the "Voting
Share Purchase Agreement", dated August 10, 1999 the Contracting Parties are
holding the following proportion of the Voting Shares:
<TABLE>
<CAPTION>
Voting shares
-------------
<S> <C>
Dr. Heinrich Zinsli 17.4%
Dr. Ernst Burgisser 25.2%
Dr. Helmut Kessmann 17.4%
Discovery Partners International 40%
</TABLE>
The Parties agreed upon an exclusive and irrevocable right of Discovery Partners
International to buy the rest of the Voting Share Capital of the Company (60% of
the votes and 60% of the nominal capital). This right expires on December 31,
1999.
As of the closing day of this agreement, all of the Non-Voting Share Capital of
the Company is owned by Novartis (represented by Novartis Venture Fund). The
Buyer intends to buy and Novartis agreed to sell all of the Non-Voting Share
Capital of the Company to the Buyer (Novartis letter of May 27, 1999).
By this Agreement the Parties want to provide for the ownership and operation of
the Company.
Therefore the Parties agree as follows:
CLAUSE 1 - TRANSFER OF SHARES/RIGHT OF FIRST REFUSAL
No Party shall sell or transfer any portion of its shares in the Company without
the consent of the other parties, such consent not to be unreasonably withheld.
If any Party desires to sell or transfer all or any portion of its shares on or
after January 1, 2000, such Party ("Selling Party") shall first offer all such
shares by written notice to the other Parties ("Offeree Parties") specifying
price, terms and conditions of that sale. The Offeree Parties shall accept or
reject the offer in writing no later than ninety (90) days ("Acceptance Period")
after receipt of such offer from the Selling Party. If one of the Offeree
Parties accepts such offer, the written notice of acceptance shall set forth the
place and time, which shall be a business day not more than sixty (60) days
after the date of acceptance ("Acquisition Period") at which the closing for the
transfer shall take place. If all the Offeree Parties do not accept the offer
within the Acceptance Period, then the Selling Party shall thereafter be free to
dispose of its shares within a period of ninety (90) days ("Free Sale Period")
after the expiration of said Acceptance Period: provided however, the Selling
Party shall not sell such shares to any third party either (a) at a lower price
than the price at which such shares were offered to the Offeree Parties, or (b)
on other terms or conditions more favorable than those on which shares were
offered to the Offeree Parties. If the shares are not sold or transferred to a
third party upon the terms established herein
<PAGE> 3
Shareholders Agreement -3-
and within the Free Sale Period, then they shall automatically become subject
once more to the terms of this Article as if they had never before been offered
for sale.
In case more than one party is interested in taking over the shares, they will
be allotted to each of the interested parties in proportion to their share
capital.
If either Party hereto sells or otherwise transfers all or any part of its
shares to a third party, such Selling Party shall cause the party acquiring such
shares, as a condition of such acquisition, to furnish a written undertaking to
all Parties agreeing to observe and be bound by all provisions to this Agreement
to the same extent as the Party who sold the shares. In addition, such Selling
Party shall be responsible to the other Parties hereto, in respect of such
purchaser or transferee, to secure complete and timely observance of the
provisions of this Agreement by such purchaser or transferee.
CLAUSE 2 - TAKE ALONG CLAUSE
If any Party desires to sell or transfer all its shares to a third party and
this third party refuses to buy only the voting shares of the Party, but offers
to buy all remaining shares from the other Parties in addition, making up 100 %
of the Voting Share Capital and the price offered for all the shares by the
third party is at least equivalent to 110 % of the initial price as agreed in
the Voting Share Purchase Agreement, dated August 10, 1999, the other Parties
shall be obliged to sell its shares to the third party.
If Party 1, 2 and 3 together ("Group of Parties") or Party 4 by itself are
holding less than or equivalent to 40 % of the shares, the price paid by the
third party will not be distributed proportionally, but the Party or the Group
of Parties will receive only 90 % of the proportionate price, the difference
will be paid to the other Party respectively Group of Parties.
This Clause will enter into force as of January 1, 2000. Clause 1 (Right of
first refusal) will always override Clause 2.
CLAUSE 3 - MEETINGS OF SHAREHOLDERS
All actions and resolutions of the shareholders meeting shall be adopted by the
affirmative vote of a majority of sixty-seven (67) % of all Voting Shares. This
quorum may be changed by a majority of sixty-seven (67) % of all Voting Shares.
Each Party shall exercise its respective voting rights in the Company and take
such other steps as are necessary to ensure:
a) that the board of directors of the Company shall consist of five (5) board
members (the "Board of Directors");
b) that Dr. Zinsli, Dr. Burgisser and Dr. Kessmann shall each nominate either
themselves or a representative as member of the Board of Directors;
<PAGE> 4
Shareholders Agreement -4-
c) that Discovery Partners International shall nominate two (2) representatives
as members of the Board of Directors.
CLAUSE 4 - BOARD OF DIRECTORS AND DAY-TO-DAY MANAGEMENT
Meetings of the Board of Directors may be called at the request of any director
and notice of said meetings shall be given at least ten (10) days before the
meeting. In the notice the agenda has to be mentioned. A quorum shall exist and
any such meeting shall continue only if at least three (3) directors are
present, one of which must be a director representing Discovery Partners
International.
All actions and resolutions taken at a meeting of the Board of Directors shall
be adopted by a majority vote of all directors constituting a quorum except
those items listed below which always require the affirmative vote of a director
representing Discovery Partners International:
a) Entering into new business areas and leaving of existing business areas;
b) Purchase or disposition of real property or holdings in other
companies by the Company; c) Purchase or sale of any asset valued in
excess of CHF 50,000 by the Company;
d) Adoption or modification of any internal policy including but not
limited to any change in the management organization of the Company;
e) Entering into an agreement or a commitment for the company to borrow or
loan money, execute negotiable instruments or otherwise encumber
property or incur debt;
f) Entering into an agreement to bind the Company on any surety, guaranty
or warranty contract;
g) Entering into an agreement between the Company and a Party hereto or
waiver to the terms thereof;
h) Adoption or approval of and/or modification to any operating, capital or
cash budget(s);
i) Bids by the Company for any project on a turnkey, lump sum or guaranteed
maximum price basis for projects valued in excess of USD 500,000;
j) Any project where there exist the potential for liability for
consequential damages;
k) Granting of any powers of attorney to act on behalf of the Company;
1) Adoption or modification of strategic plans of the Company;
m) Selection and change of any tax, legal and accounting consultants to the
Company;
n) Election and/or modification of any tax or accounting methods, policies
and practices;
o) Implementation of tax strategies involving the Company;
p) The nature and amount of officer compensation for the Company;
q) The Investment of the capital in excess of the Company's necessary
working capital;
r) Designation of the Management Committee members of the Company;
s) Issuing or changing of organizational bylaws;
t) Opening of branch offices;
u) Employment of staff in excess of budgeted levels;
The preceding paragraphs of this Clause shall be in force until July 31, 2001.
The day-to-day management of the Company shall be in the responsibility of the
CEO.
<PAGE> 5
Shareholders Agreement -5-
CLAUSE 5 - RIGHT TO DIVIDEND
The shareholders shall adopt the annual accounts and declare dividends on the
shares in a resolution at the annual shareholders meeting in accordance with the
proposals submitted by the Board of Directors.
CLAUSE 6 - SAFEGUARDING OF THE AGREEMENT
As security for the obligations under Clause 1 of this agreement, the
Contracting Parties undertake to deposit their shares with ATAG Ernst & Young AG
as escrow agent. A separate escrow agreement will be signed.
Infringements of the Clause 1 of this agreement entail a conventional penalty of
CHF 100,000. Further claims, especially claims to performance and to damages are
reserved.
CLAUSE 7 - TERMINATION
This Agreement shall continue to be in effect until terminated pursuant to the
provisions of this Agreement or by mutual agreement of the Parties or by
approval of sixty-seven (67) % of the Voting Shares. Clause 4 will terminate
July 31, 2001.
If any Party disposes of its shares and fulfills all duties of this agreement
the Party will not be bound any longer by this Agreement. However, as long as a
Party or their representative is a member of the Board of Directors it shall
continue to be bound to the Agreement. The shareholders may waive this
requirement by approval of sixty-seven (67) % of the Voting Shares.
The withdrawal from the Agreement by one Contracting Party does not affect the
validity of the present agreement for the remaining Contracting Parties.
This Agreement shall not be terminable for a period of ten (10) years. After ten
(10) years, each Party may, following six (6) month written notice in its sole
discretion terminate this Agreement, such termination to be effective at the end
of the calendar year in which the six months period expires.
This Agreement shall be terminable at any time forthwith upon the sending of
notice in writing upon liquidation and/or dissolution of the Company.
CLAUSE 8 - PREFERENTIAL RIGHT IN CASE OF TERMINATION
If any of the contracting parties terminate this Agreement following Clause 7,
paragraph 4, it previously has to offer its shares for takeover by the other
Contracting Parties. In this notice the other Contracting Parties will be
granted a period of sixty (60) days to assert their takeover right.
<PAGE> 6
Shareholders Agreement -6-
In case more than one party is interested in taking over the shares, they will
be allotted to each of the interested parties in proportion to their share
capital.
In case the Parties cannot reach an agreement over the takeover price of the
shares then the Board of Directors shall entrust a Fiduciary Company, member of
the Swiss Institute of Certified Accountants and Tax Consultants with the
fixation of the real value of the shares in order to determine the takeover
price. The takeover price is at least the initial price as agreed in the Voting
Share Purchase Agreement, dated August 10, 1999.
CLAUSE 9 - GOVERNING LAW AND COMPETENT JURISDICTION
This Agreement shall be controlled and interpreted under the laws of
Switzerland, excluding laws thereof which refer to the laws of another
jurisdiction.
The exclusive place of jurisdiction is Allschwil (BL), Switzerland.
CLAUSE 10 - DISPUTES
With regard to any dispute relating to the interpretation, performance or
termination of this Agreement, the parties will make their best efforts to come
to an amicable settlement, in particular, by organizing a mediation meeting
between their respective advisers, if this may be useful.
CLAUSE 11 - SALVATORY CLAUSE
In the event any term or provision of this Agreement is for any reason found
invalid, illegal or unenforceable in any respect, such invalidity shall not
affect the validity of any remaining portion, which shall remain in full force
and effect, as if the invalid portion was never a part of this Agreement when it
was executed.
CLAUSE 12 - MODIFICATIONS
Any modifications of this Agreement must be in writing and signed by all
parties.
<PAGE> 7
Shareholders Agreement -7-
Executes in 6 original counterparts of which one copy for each of the Parties
and one copy for the Company's documentation.
PARTIES
Date: 10/8/99 Date: 10/8/99
/s/ illegible /s/ illegible
- ------------------------------ ------------------------------
Date: 10/8/99 Date: 10/8/99
/s/ illegible /s/ illegible
- ------------------------------ ------------------------------
<PAGE> 1
EXHIBIT 10.15
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THIS WARRANT
HAS BEEN ISSUED IN RELIANCE UPON THE
REPRESENTATION OF THE HOLDER THAT IT HAS BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARD THE RESALE OR OTHER DISTRIBUTION
THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS.
IRORI
Common Stock Purchase Warrant
To Subscribe for and Purchase July 18, 1995
150,000 Shares of Common Stock
of Irori
THIS CERTIFIES that, for value received, Enterprise Partners III, L.P.,
or its registered assigns (the "Holder"), is entitled to subscribe for and
purchase from Irori, a California corporation (hereinafter called the
"Corporation"), up to 150,000 shares (subject to adjustment as hereinafter
provided) of fully paid and non-assessable Common Stock of the Corporation (the
"Common Stock"), subject to the provisions and upon the terms and conditions
hereinafter set forth at the price of $0.01 per share (such price as from time
to time to be adjusted as provided herein is called the "Warrant Price"), at or
prior to the earlier of (i) 5:00 p.m. Pacific time on July 17, 2000, or (ii) the
effective date of the registration statement for the Corporation's initial
public offering of equity securities (the "Exercise Period"). This Warrant and
any Warrant subsequently issued upon exchange or transfer hereof are hereinafter
collectively called the "Warrant."
Section 1. Exercise of Warrant. The rights represented by this Warrant
may be exercised by the Holder, in whole or in part (but not as to fractional
shares) at any time or from time to time during the Exercise Period by the
completion of the purchase form attached hereto and by the surrender of this
Warrant (properly endorsed) at the office of the Corporation as it may designate
by notice in writing to the Holder hereof at the address of the Holder appearing
on the books of the Corporation, and by payment to the Corporation of the
Warrant Price in cash or by certified or official bank check, for each share
being purchased. (In addition, see Section 2 below for net issuance provisions.)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder, or its nominee or other party designated
in the purchase form by the
<PAGE> 2
Holder hereof, shall be delivered to the Holder within thirty (30) business days
after the date in which the rights represented by this Warrant shall have been
so exercised; and, unless this Warrant has expired or has been exercised in
full, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder within such time. The
person in whose name any certificate for shares of Common Stock is issued upon
exercise of this Warrant shall for all purposes be deemed to have become the
holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Warrant Price, except that, if the date of such
surrender and payment is a date on which the stock transfer books of the
Corporation are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open. No fractional shares shall be issued upon
exercise of this Warrant and no payment or adjustment shall be made upon any
exercise on account of any cash dividends on the Common Stock issued upon such
exercise. If any fractional interest in a share of Common Stock would, except
for the provision of this Section 1, be delivered upon such exercise, the
Corporation, in lieu of delivery of a fractional share thereof, shall pay to the
Holder an amount in cash equal to the current market price of such fractional
share as determined in good faith by the Board of Directors of the Corporation
(the "Board").
Section 2. Net Issuance.
(a) Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 2 at any time or from
time to time during the Exercise Period. Upon exercise of the Conversion Right
with respect to a particular number of shares subject to the Warrant (the
"Converted Warrant Shares"), the Corporation shall deliver to the Holder
(without payment by the Holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Common
Stock computed using the following formula:
X = Y (A - B)
---------
A
Where X = the number of shares of Common Stock to be delivered to the
holder
Y = the number of Converted Warrant Shares
A = the fair market value of one share of the Corporation's
Common Stock on the Conversion Date (as defined below)
B = the per share exercise price of the Warrant (as adjusted to
the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other
-2-
<PAGE> 3
than a whole number, the Corporation shall pay to the Holder an amount in cash
equal to the fair market value of the resulting fractional share on the
Conversion Date (as defined below). Shares issued pursuant to the Conversion
Right shall be treated as if they were issued upon the exercise of the Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by
the Holder by the surrender of the Warrant at the principal office of the
Corporation together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the total number of
shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Corporation of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
(c) Determination of Fair Market Value. For purposes of this
Section 2, fair market value of a share of Common Stock on the Conversion Date
shall mean:
(i) If traded on a stock exchange, the fair market value
of the Common Stock shall be deemed to be the average of the closing selling
prices of the Common Stock on the stock exchange determined by the Board to be
the primary market for the Common Stock over the ten (10) trading day period (or
such shorter period immediately following the closing of an initial public
offering) ending on the date prior to the Conversion Date, as such prices are
officially quoted in the composite tape of transactions on such exchange;
(ii) If traded over-the-counter, the fair market value of
the Common Stock shall be deemed to be the average of the closing bid prices
(or, if such information is available, the closing selling prices) of the Common
Stock over the ten (10) trading day period (or such shorter period immediately
following the closing of an initial public offering) ending on the date prior to
the Conversion Date, as such prices are reported by the National Association of
Securities Dealers through its NASDAQ system or any successor system; and
(iii) If there is no public market for the Common Stock,
then the fair market value shall be determined by mutual agreement of the holder
of the Warrant and the Corporation, and if the holder and the Corporation are
unable to so agree, by an investment banker of national reputation selected by
the Corporation and reasonably acceptable to the holder of the Warrant.
Section 3. Stock Splits, Consolidation, Merger and Sale. In the event
that before the issuance of the shares of Common Stock into which this Warrant
may be exercised the outstanding shares of Common Stock shall be split, combined
or consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock, the Warrant Price in effect immediately
prior to such combination or consolidation and the number of shares purchasable
under this Warrant shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately adjusted. If there shall be
effected any consolidation or merger of the Corporation with another
corporation, or a sale of all or
-3-
<PAGE> 4
substantially all of the Corporation's assets to another corporation, and if the
holders of Common Stock shall be entitled pursuant to the terms of any such
transaction to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the Holder of this
Warrant shall thereafter have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the exercise of such Warrant, such
shares of stock, securities or assets as may be issuable or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore so
receivable had such consolidation, merger or sale not taken place, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of this Warrant.
(a) Stock to Be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon the exercise of this Warrant as herein provided, such
number of shares of Common Stock as shall then be issuable upon the exercise of
this Warrant. The Corporation shall from time to time in accordance with
applicable law increase the authorized amount of its Common Stock if at any time
the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit exercise of this Warrant. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation will take all such
action as may be necessary to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which shares of capital
stock of the Corporation may be listed.
(b) Issue Tax. The issuance of certificates for shares of Common
Stock upon exercise of this Warrant shall be made without charge to the Holders
of this Warrant for any issuance tax in respect thereof provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the Holder of this Warrant.
(c) Closing of Books. The Corporation will at no time close its
transfer books against the transfer of the shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
Section 4. Notices of Record Dates. In the event of:
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
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<PAGE> 5
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation or
any transfer of all or substantially all the assets of the Corporation to or
consolidation or merger of the Corporation with or into any other corporation,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the Holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least ten (10) days and not more than
ninety (90) days prior to the date therein specified, and such notice shall
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or to a favorable vote of stockholders, if either
is required.
Section 5. No Stockholder Rights or Liabilities. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Corporation. No provision hereof, in the absence of affirmative action by
the Holder hereof to purchase shares of Common Stock, and no mere enumeration
hereon of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Warrant Price or as a stockholder of the
Corporation, whether such liability is asserted by the Corporation or by
creditors of the Corporation.
Section 6. Representations of Holder. By acceptance of this Warrant, the
Holder hereby represents and acknowledges to the Corporation that:
(a) this Warrant, the Common Stock issuable upon exercise of this
Warrant and any securities issued with respect to any of them by way of a stock
dividend or stock split or in connection with a recapitalization, merger,
consolidation or other reorganization will be "restricted securities" as such
term is used in the rules and regulations under the Securities Act and that such
securities have not been and will not be registered under the Securities Act or
any state securities law, and that such securities must be held indefinitely
unless registration is effected or transfer can be made pursuant to appropriate
exemptions;
(b) the Holder has read, and fully understands, the terms of this
Warrant set forth on its face and the attachments hereto, including the
restrictions on transfer contained herein;
(c) the Holder has either a pre-existing personal or business
relationship with the Corporation or one of its officers, directors or
controlling persons;
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<PAGE> 6
(d) the Holder is purchasing for investment for its own account
and not with a view to or for sale in connection with any distribution of this
Warrant or the Common Stock of the Corporation issuable upon exercise of this
Warrant and it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein will prevent Holder from
transferring such securities in compliance with the terms of this Warrant and
the applicable federal and state securities laws;
(e) the Holder is an "accredited investor" within the meaning of
paragraph (a) of Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission and an "excluded purchaser" within the meaning of Section
25102(f) of the California Corporate Securities Law of 1968; and
(f) the Corporation may affix the following legend (in addition to
any other legend(s), if any, required by applicable state corporate and/or
securities laws) to certificates for shares of Common Stock (or other
securities) issued upon exercise of this Warrant ("Warrant Shares"):
"These securities have not been registered under the Securities
Act of 1933, as amended. 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."
Section 7. Notice of Proposed Transfers. The Holder of this Warrant, by
acceptance hereof, agrees to comply in all respects with the provisions of this
Section 7. Prior to any proposed transfer of this Warrant or any Warrant Shares,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the Holder of such securities shall give written
notice to the Corporation of such Holder's intention to effect such transfer.
Each such notice shall describe the manner and circumstances of the proposed
transfer in sufficient detail, and shall be accompanied (except in transactions
in compliance with Rule 144) by either (i) a written opinion of legal counsel
who shall be reasonably satisfactory to the Corporation addressed to the
Corporation and reasonably satisfactory in form and substance to the
Corporation's counsel, to the effect that the proposed transfer of the Warrant
and/or Warrant Shares may be effected without registration under the Securities
Act, or (ii) a "no action" letter from the U.S. Securities and Exchange
Commission (the "Commission") to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that enforcement action be taken with respect thereto, whereupon the
Holder of such securities shall be entitled to transfer such securities in
accordance with the terms of the notice delivered by the Holder to the
Corporation. Each new certificate evidencing the Warrant and/or Warrant Shares
so transferred shall bear the appropriate restrictive legends set forth in
Section 6(f) above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for the Corporation, such legend is not
required in order to establish or assist in compliance with any provisions of
the Securities Act or any applicable state securities laws.
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<PAGE> 7
Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as
to indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Corporation, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 9. Presentment. Prior to due presentment of this Warrant
together with a completed assignment form attached hereto for registration of
transfer, the Corporation may deem and treat the Holder as the absolute owner of
the Warrant, notwithstanding any notation of ownership or other writing thereon,
for the purpose of any exercise thereof and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary.
Section 10. Notice. Notice or demand pursuant to this Warrant shall be
sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the Holder of this Warrant, to the Holder at its last known
address as it shall appear in the records of the Corporation, and if to the
Corporation, at 11588 Sorrento Valley Road, Suite 16, San Diego, California
92121, Attention: Secretary. The Corporation may alter the address to which
communications are to be sent by giving notice of such change of address in
conformity with the provisions of this Section 10 for the giving of notice.
Section 11. Governing Law. The validity, interpretation and performance
of this Warrant shall be governed by the laws of the State of California without
regard to principles of conflicts of laws.
Section 12. Successors, Assigns. Subject to the restrictions on transfer
by Holder set forth in Section 7 hereof, all the terms and provisions of the
Warrant shall be binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
Section 13. Amendment. This Warrant may be modified, amended or
terminated by a writing signed by the Corporation and the Holder.
Section 14. Severability. Should any part but not the whole of this
Warrant for any reason be declared invalid, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Warrant without including
therein any such part which may, for any reason, be hereafter declared invalid.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 8
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly
executed and delivered on and as of the day and year first above written by one
of its officers thereunto duly authorized.
IRORI, a California corporation
Dated: July 18, 1995 By: /s/ Michael P. Nova
-----------------------------------
Michael P. Nova
Title: President
--------------------------------
The undersigned Holder agrees and accepts this Warrant and acknowledges
that it has read and confirms each of the representations contained in Section
6.
ENTERPRISE PARTNERS III, L.P.
By:
-----------------------------------
Its:
----------------------------------
Address:
------------------------------
------------------------------
------------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
<PAGE> 9
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: IRORI
The undersigned, whose Social Security or other identifying number is
______________ , hereby irrevocably elects the right of purchase represented by
the within Warrant for, and to purchase thereunder,
_________________________________shares of Common Stock provided for therein and
tenders payment herewith to the order of
IRORI
in the amount of
$___________________
The undersigned requests that certificates for such shares be issued as follows:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
Deliver to: ____________________________________________________________________
Address: _______________________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below
Address: ____________________________________
Dated: ___________, 199__
Signature ______________________________
(Signature must conform in all respects
to the name of the Warrant Holder as
specified on the face of the Warrant,
without alteration, enlargement or any
change whatsoever)
<PAGE> 10
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_________________________________________________________________ - whose Social
Security or other identification number is ________________ residing/located] at
___________________ the attached Warrant, and appoints _________________________
residing at
________________________________________________________________________________
________________________________________________________________________________
the undersigned's attorney-in-fact to transfer said Warrant on the books of the
Corporation, with full power of substitution in the premises.
Dated: ____________, 199__.
In the presence of:
____________________________ ________________________________________
(Signature must conform in all respects
to the name of the Warrant Holder as
specified on the face of the Warrant,
without alteration, enlargement or any
change whatsoever).
<PAGE> 1
EXHIBIT 10.16
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
IRORI
Dated as of February 9, 1996 (the "Effective Date")
WHEREAS, IRORI, Inc., a California corporation (the "Company") has
entered into a Master Lease Agreement dated as of February 9, 1996, Equipment
Schedule No. VL-1 dated as of February 9, 1996, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series A Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 9,700 fully paid and non-assessable
shares of the Company's Series A Preferred Stock ("Preferred Stock") at a
purchase price of $2.00 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
If all of the Preferred Stock is converted into shares of Common Stock in
connection with a registration of the Company's Common Stock under the
Securities Act of 1933, as amended, then this Warrant shall automatically become
exercisable for that number of shares of Common Stock equal to the number of
shares of Common Stock that would have been received if this Warrant had been
exercised in full and the shares of Preferred Stock received thereupon had been
simultaneously converted into shares of Common Stock immediately prior to such
event, and the Exercise Price shall automatically be adjusted to equal the
amount obtained by dividing (i) the aggregate Exercise Price of the shares of
Preferred Stock for which this Warrant was exercisable immediately prior to such
conversion, by (ii) the number of shares of Common Stock for which this Warrant
is exercisable immediately after such conversion.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement and
the right to purchase Preferred Stock as granted herein shall commence on the
Effective Date and shall be exercisable for a period of (i) ten (10) years or
(ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
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<PAGE> 2
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by the
Warrantholder, in whole or in part, at any time, or from time to time, prior to
the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i) by
cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined
below. If the Warrantholder elects the Net Issuance method, the Company will
issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
-----
A
Where: X = the number of shares of Preferred Stock to be issued
to the Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
(a) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement relating
to such public offering has been declared effective by the SEC, then the fair
market value per share shall be the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(b) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(i) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise; or
(ii) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing bid
and asked prices quoted on the NASDAQ system (or similar system) over
the twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined and (y)
the number of shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise;
(c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market the
current fair market value of Preferred Stock shall be the product of (x) the
highest price per share which the Company could obtain from a willing buyer (not
a current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by its Board of
Directors and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise, unless the Company
shall become subject to a merger, acquisition or other
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<PAGE> 3
consolidation pursuant to which the Company is not the surviving party, in which
case the fair market value of Preferred Stock shall be deemed to be the value
received by the holders of the Company's Preferred Stock on a common equivalent
basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant Agreement representing the remaining number of shares
purchasable hereunder. All other terms and conditions of such amended Warrant
Agreement shall be identical to those contained herein, including, but not
limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of the Warrant, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting rights
or other rights as a shareholder of the Company prior to the exercise of the
Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant
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<PAGE> 4
Agreement (including adjustments of the Exercise Price and number of shares of
Preferred Stock purchasable) shall be applicable to the greatest extent
possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Amended and Restated Articles of Incorporation, as amended through the Effective
Date, a true and complete copy of which is attached hereto as Exhibit IV (the
"Charter"). The Company shall promptly provide the Warrantholder with any
restatement amendment, modification or waiver of the Charter. (f) Notice of
Adjustments. If: (i) the Company shall declare any dividend or distribution upon
its stock, whether in cash, property, stock or other securities; (ii) the
Company shall offer for subscription prorata to the holders of any class of its
Preferred or other convertible stock any additional shares of stock of any class
or other rights; (iii) there shall be any Merger Event; (iv) there shall be an
initial public offering, or (v) there shall be any voluntary dissolution,
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of a
public offering, the Company shall give the Warrantholder at least twenty (20)
days written notice prior to the effective date hereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (V)
the number of shares subject to purchase hereunder after giving effect to such
adjustment and shall be given by first class mail, postage prepaid, addressed to
the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
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<PAGE> 5
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A)
10,000,000 shares of Common Stock, of which 730,000 shares are issued
and outstanding, and (B) 1,750,000 shares of preferred stock, of which
750,000 shares are issued and outstanding and are convertible into
750,000 shares of Common Stock at $2.00 per share.
(ii) The Company has reserved (A) 287,000 of Common Stock for
issuance under its Stock Option Plans. The Company currently has no
options outstanding under it Nonqualified Stock Option Plan, and options
for 73,100 shares outstanding at an average price of $0.20 per share
under its Incentive Stock Option Plan. In addition the Company has a
warrant to Enterprise Partners III, LP for the issuance of 150,000
shares of Common Stock at an exercise price of $0.01 per share. There
are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized
but unissued shares of the Company's capital stock or other securities
of the Company.
(iii) Except as set forth in the Investors' Rights Agreement
dated as of October 19, 1995 ("Investors' Rights Agreement"), no
shareholder of the Company has preemptive rights to purchase new
issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
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<PAGE> 6
(f) Other Commitments to Register Securities. Except as set forth in the
Investors' Rights Agreement, the Company is not, pursuant to the terms of any
other agreement currently in existence, under any obligation to register under
the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
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<PAGE> 7
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Wan-ant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Wan-ant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Group, cc: Legal Department, attn: General Counsel, (and/or, if by
facsimile, (708) 518-5466 and (708)518-5088) and (ii) to the Company at 11025 N.
Torrey Pines Road Suite 100, La Jolla, California 92037, (and/or if by
facsimile, (619)546-3083) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all
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<PAGE> 8
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.
Company: IRORI
By: /s/ illegible
------------------------------
Title: CEO
----------------------------
Warrantholder: COMDISCO, INC.
By: /s/ James P. Labe
------------------------------
James P. Labe
Title: James P. Labe, President
----------------------------
Venture Lease Division
-8-
<PAGE> 9
EXHIBIT I
NOTICE OF EXERCISE
To:___________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares
of the Series A Preferred Stock of Irori, pursuant to the terms of the
Warrant Agreement dated the _______ day of _______________, 19__ (the
"Warrant Agreement") between Irori and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series A Preferred Stock of
Irori _______________________________________, the undersigned hereby
confirms and acknowledges the investment representations and warranties
made in Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Preferred Stock in the name of the undersigned or in such other
name as is specified below.
____________________________________
(Name)
____________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:_________________________________
Title:______________________________
Date:_______________________________
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<PAGE> 10
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ______________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase _____
shares of the Series A Preferred Stock of ____________________________________,
pursuant to the terms of the Warrant Agreement, and further acknowledges that
_______ shares remain subject to purchase under the terms of the Warrant
Agreement.
Company:
By:_________________________________
Title:______________________________
Date:_______________________________
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<PAGE> 11
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
____________________________________________________________
(Please Print)
whose address is____________________________________________
____________________________________________________________
Dated________________________________
Holder's Signature___________________
Holder's Address_____________________
Signature Guaranteed:_______________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.17
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
IRORI
Dated as of February 9, 1996 (the "Effective Date")
WHEREAS, IRORI, Inc., a California corporation (the "Company") has
entered into a Master Lease Agreement dated as of February 9, 1996, Equipment
Schedule No. VL-1 dated as of February 9, 1996, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series A Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 23,351 fully paid and
non-assessable shares of the Company's Series A Preferred Stock ("Preferred
Stock") at a purchase price of $2.00 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
If all of the Preferred Stock is converted into shares of Common Stock in
connection with a registration of the Company's Common Stock under the
Securities Act of 1933, as amended, then this Warrant shall automatically become
exercisable for that number of shares of Common Stock equal to the number of
shares of Common Stock that would have been received if this Warrant had been
exercised in full and the shares of Preferred Stock received thereupon had been
simultaneously converted into shares of Common Stock immediately prior to such
event, and the Exercise Price shall automatically be adjusted to equal the
amount obtained by dividing (i) the aggregate Exercise Price of the shares of
Preferred Stock for which this Warrant was exercisable immediately prior to such
conversion, by (ii) the number of shares of Common Stock for which this Warrant
is exercisable immediately after such conversion.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement and
the right to purchase Preferred Stock as granted herein shall commence on the
Effective Date and shall be exercisable for a period of (i) ten (10) years or
(ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
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<PAGE> 2
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by the
Warrantholder, in whole or in part, at any time, or from time to time, prior to
the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i) by
cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined
below. If the Warrantholder elects the Net Issuance method, the Company will
issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
(a) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement relating
to such public offering has been declared effective by the SEC, then the fair
market value per share shall be the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(b) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(i) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise; or
(ii) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing bid
and asked prices quoted on the NASDAQ system (or similar system) over
the twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined and (y)
the number of shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise;
(c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market the
current fair market value of Preferred Stock shall be the product of (x) the
highest price per share which the Company could obtain from a willing buyer (not
a current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by its Board of
Directors and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise, unless the Company
shall become subject to a merger, acquisition or other
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<PAGE> 3
consolidation pursuant to which the Company is not the surviving party, in which
case the fair market value of Preferred Stock shall be deemed to be the value
received by the holders of the Company's Preferred Stock on a common equivalent
basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant Agreement representing the remaining number of shares
purchasable hereunder. All other terms and conditions of such amended Warrant
Agreement shall be identical to those contained herein, including, but not
limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of the Warrant, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting rights
or other rights as a shareholder of the Company prior to the exercise of the
Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant
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<PAGE> 4
Agreement (including adjustments of the Exercise Price and number of shares of
Preferred Stock purchasable) shall be applicable to the greatest extent
possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Amended and Restated Articles of Incorporation, as amended through the Effective
Date, a true and complete copy of which is attached hereto as Exhibit IV (the
"Charter"). The Company shall promptly provide the Warrantholder with any
restatement amendment, modification or waiver of the Charter. (f) Notice of
Adjustments. If: (i) the Company shall declare any dividend or distribution upon
its stock, whether in cash, property, stock or other securities; (ii) the
Company shall offer for subscription prorata to the holders of any class of its
Preferred or other convertible stock any additional shares of stock of any class
or other rights; (iii) there shall be any Merger Event; (iv) there shall be an
initial public offering, or (v) there shall be any voluntary dissolution,
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of a
public offering, the Company shall give the Warrantholder at least twenty (20)
days written notice prior to the effective date hereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (V)
the number of shares subject to purchase hereunder after giving effect to such
adjustment and shall be given by first class mail, postage prepaid, addressed to
the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
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<PAGE> 5
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A)
10,000,000 shares of Common Stock, of which 730,000 shares are issued
and outstanding, and (B) 1,750,000 shares of preferred stock, of which
750,000 shares are issued and outstanding and are convertible into
750,000 shares of Common Stock at $2.00 per share.
(ii) The Company has reserved (A) 287,000 of Common Stock for
issuance under its Stock Option Plans. The Company currently has no
options outstanding under it Nonqualified Stock Option Plan, and options
for 73,100 shares outstanding at an average price of $0.20 per share
under its Incentive Stock Option Plan. In addition the Company has a
warrant to Enterprise Partners III, LP for the issuance of 150,000
shares of Common Stock at an exercise price of $0.01 per share. There
are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized
but unissued shares of the Company's capital stock or other securities
of the Company.
(iii) Except as set forth in the Investors' Rights Agreement
dated as of October 19, 1995 ("Investors' Rights Agreement"), no
shareholder of the Company has preemptive rights to purchase new
issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
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<PAGE> 6
(f) Other Commitments to Register Securities. Except as set forth in the
Investors' Rights Agreement, the Company is not, pursuant to the terms of any
other agreement currently in existence, under any obligation to register under
the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
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<PAGE> 7
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Wan-ant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Group, cc: Legal Department, attn: General Counsel, (and/or, if by
facsimile, (708) 518-5466 and (708)518-5088) and (ii) to the Company at 11025 N.
Torrey Pines Road Suite 100, La Jolla, California 92037, (and/or if by
facsimile, (619)546-3083) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all
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<PAGE> 8
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.
Company: IRORI
By: /s/ illegible
-------------------------------------
Title: CEO
-------------------------------------
Warrantholder: COMDISCO, INC.
-------------------------------------
By: /s/ James P. Labe
-------------------------------------
James P. Labe
Title: James P. Labe, President
-------------------------------------
Venture Lease Division
-8-
<PAGE> 9
EXHIBIT I
NOTICE OF EXERCISE
To:
(1) The undersigned Warrantholder hereby elects to purchase _______ shares
of the Series A Preferred Stock of Irori, pursuant to the terms of the
Warrant Agreement dated the _______ day of _______________, 19__ (the
"Warrant Agreement") between Irori and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series A Preferred Stock of
Irori _______________________________________, the undersigned hereby
confirms and acknowledges the investment representations and warranties
made in Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Preferred Stock in the name of the undersigned or in such other
name as is specified below.
____________________________________
(Name)
____________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:_________________________________
Title:______________________________
Date:_______________________________
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<PAGE> 10
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ______________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase _____
shares of the Series A Preferred Stock of ____________________________________,
pursuant to the terms of the Warrant Agreement, and further acknowledges that
_______ shares remain subject to purchase under the terms of the Warrant
Agreement.
Company:_________________________________
By:______________________________________
Title:___________________________________
Date:____________________________________
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<PAGE> 11
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
________________________________________________________________________________
Dated _____________________________________
Holder's Signature ________________________
Holder's Address __________________________
___________________________________________
Signature Guaranteed: ___________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.18
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT. SEE ALSO SECTIONS 3,6 AND 8.1 HEREOF.
No. ________ Void after
February 2, 2004
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
of
IRORI
THIS CERTIFIES THAT, for value received, ___________________, together
with its successors and assigns (the "Holder") is entitled to subscribe for and
purchase, on the terms hereof, a calculated number of shares of common stock
("Common Stock") of IRORI, a California corporation (the "Company"), subject to
adjustment as provided herein.
This Warrant is subject to the following terms and conditions:
1. Convertible Promissory Note and Warrant Purchase Agreement. This
Warrant is one of a series of Warrants issued pursuant to that certain
Convertible Promissory Note and Warrant Purchase Agreement dated February 2,
1998 (the "Purchase Agreement") by and among the Company, the Holder and the
other holders of Warrants and convertible promissory notes issued in connection
with the Purchase Agreement. Pursuant to the Purchase Agreement, the Company
also issued the Holder that certain Convertible Promissory Note dated February
2, 1998 (the "Note").
2. Exercise of Warrant. The terms and conditions upon which this Warrant
may be exercised, and the Common Stock covered hereby (the "Warrant Stock") may
be purchased, are as follows:
<PAGE> 2
2.1 Term. Subject to the terms hereof, this Warrant may be
exercised, in whole or in part, at any time; provided, however, that in no event
may this Warrant be exercised later than 5:00 p.m. (Pacific Time) on the
earliest of (A) the close of business on February 2, 2004, (B) (i) the closing
of the acquisition of the Company by another entity by means of a transaction or
series of related transactions or (ii) the closing of the sale of all or
substantially all of the assets of the Company, unless the Company's
shareholders of record prior to such acquisition or sale shall hold at least
fifty percent (50%) of the voting power of the acquiring or surviving entity
immediately after such acquisition or sale, or (C) the initial underwritten
public offering of the Company's common stock (the "Common Stock") (the
"Exercise Period"). At least ten (10) days prior to the occurrence of an event
specified in (B) or (C) of this Section 2.1, the Company shall send to the
Holder notice of such event and that the Holder's rights under this Warrant
shall terminate upon the occurrence of such event; provided, that if the Company
sends such notice less than ten (10) days prior to the occurrence of such event,
the Holder's right to exercise this Warrant shall be extended for a period of
ten (10) days after the date of the notice, after which time the Holder's rights
under this Warrant shall terminate.
2.2 Number of Shares. This Warrant may be exercised for the
number of shares of Common Stock equal to the following:
(A/B) x .05 x C
-------------------
D
Where: A = the total number of elapsed days from February 2, 1998
to the date (the "Note Termination Date") the Note is either
(i) converted or (ii) paid or prepaid in full pursuant to
the terms thereof (such number in no case to exceed 182)
[For purposes of this Section 2.2, if the Note Termination
Date has not occurred by the time this Warrant is exercised,
the date of exercise shall be deemed the Note Termination
Date]
B = 365/12
C = the original principal amount of the Note
*D = $6.00
* The parties hereto acknowledge that this in no way is an attempt to
identify the fair market value of shares of Common Stock, but is
rather an arbitrary assignment of value for the purposes of this
Warrant only.
2.3 Purchase Price. The per share purchase price for the shares
of Common Stock to be issued upon exercise of this Warrant shall be, subject to
adjustment as provided herein, $0.40. The parties hereto acknowledge that this
in no way is an attempt to identify the fair market value of shares of Common
Stock, but is rather an arbitrary assignment of value for the purposes of this
Warrant only.
2
<PAGE> 3
2.4 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of a subscription attached
hereto, to the Company at its principal offices and (b) the delivery of the
purchase price by check or bank draft payable to the Company's order or by wire
transfer to the Company's account for the number of shares for which the
purchase rights hereunder are being exercised or any other form of consideration
approved by the Company's Board of Directors. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided herein or at such later date as may be specified in the executed form
of subscription, and at such time the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such exercise as provided herein shall be deemed to have become the holder
or holders of record thereof.
2.5 Net Issuance.
2.5.1 Right to Convert. In addition to and without
limiting the rights of the Holder under the terms of this Warrant, the Holder
shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into Common Stock as provided in this Section 2.5 at any
time or from time to time during the Exercise Period.
Upon exercise of the Conversion Right with respect
to a particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Common Stock computed using the following
formula:
S = T (U - V)
-------------
U
Where S = the number of shares of Common Stock to be delivered
to the Holder
T = the number of Converted Warrant Shares
U = the per share fair market value of the Common Stock
(after adjusting back out for any of the adjustments
set forth in Section 4 hereof) on the Conversion Date
(as defined below)
*V = $0.40.
* The parties hereto acknowledge that this in no way is an attempt to
identify the fair market value of shares of Common Stock, but is
rather an arbitrary assignment of value for the purposes of this
Warrant only.
3
<PAGE> 4
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
2.5.2 Method of Exercise. The Conversion Right may be
exercised by the Holder by the surrender of the Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right and indicating the total number
of shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.5.3 Determination of Fair Market Value. For purposes of
this Section 2.5, fair market value of a share of Common Stock on the Conversion
Date shall mean the fair market value as determined by the Board of Directors of
the Company.
3. Limit on Rights of the Holder upon Exercise. The Holder acknowledges
and agrees that upon the exercise of this Warrant in full or in part, the
following provisions shall apply to the rights of the Holder as a holder of
Common Stock.
3.1 Market Stand-Off Agreement. During the period of duration
(not to exceed 180 days) specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, as amended
(the "Act"), the Holder shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to transferees or donees who agree
to be similarly bound) any securities of the Company held by it at any time
during such period except Common Stock included in such registration; provided,
however, that this Section 3.1 shall be applicable only to the first such
registration statement of the Company pursuant to which Common Stock (or other
securities) of the Company are 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 securities of the
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
4. Adjustments to Conversion Price. The number of shares of Common Stock
(or any shares of stock or other securities which may be) issuable upon the
exercise of this Warrant
4
<PAGE> 5
and the exercise price hereunder shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
4.1 Dividends, Distributions, Stock Splits or Combinations. If
the Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of shareholders entitled to
receive, a dividend or other distribution payable in additional shares of common
or preferred stock (as the case may be), then and in each such event the
exercise price hereunder then in effect shall be decreased as of the time of
such issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the exercise price
hereunder then in effect by a fraction: (a) the numerator of which shall be the
total number of shares of Common Stock (assuming the conversion of all
outstanding securities of the Company that are convertible into Common Stock and
the exercise of all options and warrants to purchase Common Stock or securities
that are convertible into Common Stock) issued and outstanding immediately prior
to the time of issuance or the close of business on such record date; and (b)
the denominator of which shall be the total number of shares of Common Stock
(assuming the conversion of all outstanding securities of the Company that are
convertible into Common Stock and the exercise of all options and warrants to
purchase Common Stock or securities that are convertible into Common Stock)
issued and outstanding immediately after the time of issuance or the close of
business on such record date. If the Company shall at any time subdivide the
outstanding shares of Common Stock, or if the Company shall at any time combine
the outstanding shares of Common Stock then the exercise price hereunder
immediately shall be decreased proportionally (in the case of a subdivision) or
increased proportionally (in the case of a combination). Any such adjustment
shall become effective at the close of business on the date the subdivision or
combination becomes effective.
4.2 Reclassification or Reorganization. If the Common Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 4.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 4.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of Common Stock (or any shares of
stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
4.3 Merger, Consolidation or Sale of Assets. If at any time or
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's assets and properties to any other person or entity, then
as a part of such reorganization, merger, consolidation or sale, provision shall
be made so that the Holder shall thereafter be entitled to receive upon the
exercise of this Warrant, the number of
5
<PAGE> 6
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such reorganization, merger, consolidation
or sale, to which a holder of the number of shares of Common Stock (or any
shares of stock or other securities which may be) issuable upon the exercise of
this Warrant would have received if this Warrant had been exercised immediately
prior to such reorganization, merger, consolidation or sale.
4.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of Common Stock (or any shares
of stock or other securities which may be) issuable upon the exercise of this
Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which that adjustment or readjustment is based.
In the event of any taking by the Company of a record of the holders of Common
Stock for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, the Company shall notify the Holder
in writing of such record date at least ten (10) days prior to the date
specified therein.
4.5 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall at all times reserve and keep
available a number of its authorized shares of Common Stock, free from all
preemptive rights therein, which shall be sufficient to permit the exercise of
this Warrant and (b) shall take all such action as may be necessary or
appropriate in order that all shares of Common Stock as may be issued pursuant
to the exercise of this Warrant shall, upon issuance, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
5. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
6. Investment Intent. Unless a current registration statement under the
Act shall be in effect with respect to the securities to be issued upon exercise
of this Warrant, the Holder, by accepting this Warrant, covenants and agrees
that, at the time of exercise hereof, the Holder shall deliver to the Company a
written statement that the securities acquired by the Holder upon exercise
hereof are for the own account of the Holder for investment and are not acquired
with a view to, or for sale in connection with, any distribution thereof (or any
portion thereof) and with no present intention (at any such time) of offering or
distributing such securities (or any portion thereof).
7. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase Common Stock, and no
6
<PAGE> 7
enumeration herein of the rights or privileges of the Holder, shall give rise to
any liability of the Holder as a shareholder of the Company.
8. Miscellaneous.
8.1 Transfer of Warrant. This Warrant shall not be transferable
or assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
8.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
8.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing and in accordance with Section 6.3 of the Purchase
Agreement (for purposes of which, the term "Investor" shall mean Holder
hereunder), except as otherwise expressly provided in this Warrant.
8.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and disbursements
in addition to any other relief to which such party may be entitled.
8.5 Amendments and Waivers. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of
Warrants representing together the right to purchase at least fifty-one percent
(51%) of all of the Common Stock of the Company subject to purchase pursuant to
all of the Warrants and in accordance with the Purchase Agreement. Any amendment
or waiver effected in accordance with this Section 8.5 shall be binding upon the
Holder of this Warrant (and of any securities into which this Warrant is
convertible), each future holder of all such securities, and the Company.
8.6 Severability. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
8.7 Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
Date: February 2, 1998 IRORI, a California corporation
By: ____________________________________
Jack Fitzpatrick, Chief Financial
Officer
[SIGNATURE PAGE TO WARRANT TO
PURCHASE SHARES OF CAPITAL STOCK]
<PAGE> 9
SCHEDULE 1
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: IRORI
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, _________* shares of Common Stock of IRORI, and
herewith makes payment of $________ therefor, and requests that the certificates
for such shares be issued in the name of, and delivered to ____________________,
whose address is ______________________________________.
________________________________________
(Signature must conform in all respects
to name of the Holder as specified on
the face of the Warrant)
________________________________________
(Print Name)
________________________________________
(Address)
Dated: ___________________
- ------------
* Insert here the number of shares as to which the Warrant is being
exercised.
<PAGE> 10
SCHEDULE A
<TABLE>
<CAPTION>
Number Warrantholder
- ------ -------------
<S> <C>
1 Enterprise Partners III, L.P.
2 Enterprise Partners III Associates, L.P.
3 Mayfield VIII
4 Mayfield Associates Fund II
5 Crosspoint Venture Partners 1996
</TABLE>
<PAGE> 1
EXHIBIT 10.19
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT. SEE ALSO SECTIONS 3,6 AND 8.1 HEREOF.
No. ______ Void after
April 15, 2004
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
of
IRORI
THIS CERTIFIES THAT, for value received, ____________________, together
with its successors and assigns (the "Holder") is entitled to subscribe for and
purchase, on the terms hereof, a calculated number of shares of common stock
("Common Stock") of IRORI, a California corporation (the "Company"), subject to
adjustment as provided herein.
This Warrant is subject to the following terms and conditions:
1. Convertible Promissory Note and Warrant Purchase Agreement. This
Warrant is one of a series of Warrants issued pursuant to that certain
Convertible Promissory Note and Warrant Purchase Agreement dated April 15, 1998
(the "Purchase Agreement") by and among the Company, the Holder and the other
holders of Warrants and convertible promissory notes issued in connection with
the Purchase Agreement. Pursuant to the Purchase Agreement, the Company also
issued the Holder that certain Convertible Promissory Note dated April 15, 1998
(the "Note").
2. Exercise of Warrant. The terms and conditions upon which this Warrant
may be exercised, and the Common Stock covered hereby (the "Warrant Stock") may
be purchased, are as follows:
2.1 Term. Subject to the terms hereof, this Warrant may be
exercised, in whole or in part, at any time; provided, however, that in no event
may this Warrant be exercised later than 5:00 p.m. (Pacific Time) on the
earliest of (A) the close of business on April 15, 2004, (B) (i) the closing of
the acquisition of the Company by another entity by means of a transaction
<PAGE> 2
or series of related transactions or (ii) the closing of the sale of all or
substantially all of the assets of the Company, unless the Company's
shareholders of record prior to such acquisition or sale shall hold at least
fifty percent (50%) of the voting power of the acquiring or surviving entity
immediately after such acquisition or sale, or (C) the initial underwritten
public offering of the Company's common stock (the "Common Stock") (the
"Exercise Period"). At least ten (10) days prior to the occurrence of an event
specified in (B) or (C) of this Section 2.1, the Company shall send to the
Holder notice of such event and that the Holder's rights under this Warrant
shall terminate upon the occurrence of such event; provided, that if the Company
sends such notice less than ten (10) days prior to the occurrence of such event,
the Holder's right to exercise this Warrant shall be extended for a period of
ten (10) days after the date of the notice, after which time the Holder's rights
under this Warrant shall terminate.
2.2 Number of Shares. This Warrant may be exercised for the
number of shares of Common Stock equal to the following:
(A/B) x .05 x C
-------------------
D
Where: A = the total number of elapsed days from April 15, 1998 to
the date (the "Note Termination Date") the Note is either
(i) converted or (ii) paid or prepaid in full pursuant to
the terms thereof (such number in no case to exceed 110)
[For purposes of this Section 2.2, if the Note Termination
Date has not occurred by the time this Warrant is exercised,
the date of exercise shall be deemed the Note Termination
Date]
B = 365/12
C = the original principal amount of the Note
*D = $7.20
* The parties hereto acknowledge that this in no way is an attempt to
identify the fair market value of shares of Common Stock, but is
rather an arbitrary assignment of value for the purposes of this
Warrant only.
2.3 Purchase Price. The per share purchase price for the shares of
Common Stock to be issued upon exercise of this Warrant shall be, subject to
adjustment as provided herein, $0.48. The parties hereto acknowledge that this
in no way is an attempt to identify the fair market value of shares of Common
Stock, but is rather an arbitrary assignment of value for the purposes of this
Warrant only.
2.4 Method of Exercise. The exercise of the purchase rights evidenced by
this Warrant shall be effected by (a) the surrender of the Warrant, together
with a duly executed copy of the form of a subscription attached hereto, to the
Company at its principal offices and (b) the delivery of the purchase price by
check or bank draft payable to the Company's order or by wire transfer to the
Company's account for the number of shares for which the purchase rights
2
<PAGE> 3
hereunder are being exercised or any other form of consideration approved by the
Company's Board of Directors. Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the day on
which this Warrant shall have been surrendered to the Company as provided herein
or at such later date as may be specified in the executed form of subscription,
and at such time the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such exercise as
provided herein shall be deemed to have become the holder or holders of record
thereof.
2.5 Net Issuance.
2.5.1 Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into Common Stock as provided in this Section 2.5 at any time or from time to
time during the Exercise Period.
Upon exercise of the Conversion Right with respect to a
particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Common Stock computed using the following
formula:
S = T (U - V)
-------------
U
Where S = the number of shares of Common Stock to be delivered to the
Holder
T = the number of Converted Warrant Shares
U = the per share fair market value of the Common Stock
(after adjusting back out for any of the adjustments set
forth in Section 4 hereof) on the Conversion Date (as
defined below)
*V = $0.48.
* The parties hereto acknowledge that this in no way is an attempt to
identify the fair market value of shares of Common Stock, but is
rather an arbitrary assignment of value for the purposes of this
Warrant only.
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
3
<PAGE> 4
2.5.2 Method of Exercise. The Conversion Right may be
exercised by the Holder by the surrender of the Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right and indicating the total number
of shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.5.3 Determination of Fair Market Value. For purposes of
this Section 2.5, fair market value of a share of Common Stock on the Conversion
Date shall mean the fair market value as determined by the Board of Directors of
the Company.
3. Limit on Rights of the Holder upon Exercise. The Holder acknowledges
and agrees that upon the exercise of this Warrant in full or in part, the
following provisions shall apply to the rights of the Holder as a holder of
Common Stock.
3.1 Market Stand-Off Agreement. During the period of duration
(not to exceed 180 days) specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, as amended
(the "Act"), the Holder shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to transferees or donees who agree
to be similarly bound) any securities of the Company held by it at any time
during such period except Common Stock included in such registration; provided,
however, that this Section 3.1 shall be applicable only to the first such
registration statement of the Company pursuant to which Common Stock (or other
securities) of the Company are 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 securities of the
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
4. Adjustments to Conversion Price. The number of shares of Common Stock
(or any shares of stock or other securities which may be) issuable upon the
exercise of this Warrant and the exercise price hereunder shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
4.1 Dividends, Distributions, Stock Splits or Combinations. If
the Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of shareholders entitled to
receive, a dividend or other distribution payable in additional shares of common
or preferred stock (as the case may be), then and in each such event the
exercise price hereunder then in effect shall be decreased as of the time of
such issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the exercise price
hereunder then in effect by a fraction: (a) the numerator
4
<PAGE> 5
of which shall be the total number of shares of Common Stock (assuming the
conversion of all outstanding securities of the Company that are convertible
into Common Stock and the exercise of all options and warrants to purchase
Common Stock or securities that are convertible into Common Stock) issued and
outstanding immediately prior to the time of issuance or the close of business
on such record date; and (b) the denominator of which shall be the total number
of shares of Common Stock (assuming the conversion of all outstanding securities
of the Company that are convertible into Common Stock and the exercise of all
options and warrants to purchase Common Stock or securities that are convertible
into Common Stock) issued and outstanding immediately after the time of issuance
or the close of business on such record date. If the Company shall at any time
subdivide the outstanding shares of Common Stock, or if the Company shall at any
time combine the outstanding shares of Common Stock then the exercise price
hereunder immediately shall be decreased proportionally (in the case of a
subdivision) or increased proportionally (in the case of a combination). Any
such adjustment shall become effective at the close of business on the date the
subdivision or combination becomes effective.
4.2 Reclassification or Reorganization. If the Common Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 4.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 4.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of Common Stock (or any shares of
stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
4.3 Merger, Consolidation or Sale of Assets. If at any time or
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's assets and properties to any other person or entity, then
as a part of such reorganization, merger, consolidation or sale, provision shall
be made so that the Holder shall thereafter be entitled to receive upon the
exercise of this Warrant, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the number
of shares of Common Stock (or any shares of stock or other securities which may
be) issuable upon the exercise of this Warrant would have received if this
Warrant had been exercised immediately prior to such reorganization, merger,
consolidation or sale.
4.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of Common Stock (or any shares
of stock or other securities which may be) issuable upon the exercise of this
Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which that adjustment or readjustment is
5
<PAGE> 6
based. In the event of any taking by the Company of a record of the holders of
Common Stock for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, the Company shall notify the
Holder in writing of such record date at least ten (10) days prior to the date
specified therein.
4.5 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall at all times reserve and keep
available a number of its authorized shares of Common Stock, free from all
preemptive rights therein, which shall be sufficient to permit the exercise of
this Warrant and (b) shall take all such action as may be necessary or
appropriate in order that all shares of Common Stock as may be issued pursuant
to the exercise of this Warrant shall, upon issuance, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
5. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
6. Investment Intent. Unless a current registration statement under the
Act shall be in effect with respect to the securities to be issued upon exercise
of this Warrant, the Holder, by accepting this Warrant, covenants and agrees
that, at the time of exercise hereof, the Holder shall deliver to the Company a
written statement that the securities acquired by the Holder upon exercise
hereof are for the own account of the Holder for investment and are not acquired
with a view to, or for sale in connection with, any distribution thereof (or any
portion thereof) and with no present intention (at any such time) of offering or
distributing such securities (or any portion thereof).
7. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase Common Stock, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder as a
shareholder of the Company.
8. Miscellaneous.
8.1 Transfer of Warrant. This Warrant shall not be transferable
or assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
8.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
6
<PAGE> 7
8.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing and in accordance with Section 6.3 of the Purchase
Agreement (for purposes of which, the term "Investor" shall mean Holder
hereunder), except as otherwise expressly provided in this Warrant.
8.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and disbursements
in addition to any other relief to which such party may be entitled.
8.5 Amendments and Waivers. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of
Warrants representing together the right to purchase at least fifty-one percent
(51%) of all of the Common Stock of the Company subject to purchase pursuant to
all of the Warrants and in accordance with the Purchase Agreement. Any amendment
or waiver effected in accordance with this Section 8.5 shall be binding upon the
Holder of this Warrant (and of any securities into which this Warrant is
convertible), each future holder of all such securities, and the Company.
8.6 Severability. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
8.7 Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
Date: April 15, 1998 IRORI, a California corporation
By: ___________________________________
Jack Fitzpatrick, Chief Financial
Officer
[SIGNATURE PAGE TO WARRANT TO
PURCHASE SHARES OF CAPITAL STOCK]
<PAGE> 9
SCHEDULE 1
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: IRORI
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, _____________* shares of Common Stock of IRORI,
and herewith makes payment of $________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
______________________________________, whose address is
______________________________________________.
________________________________________
(Signature must conform in all respects
to name of the Holder as specified on
the face of the Warrant)
________________________________________
(Print Name)
________________________________________
(Address)
Dated: _________________
- --------
* Insert here the number of shares as to which the Warrant is being exercised.
<PAGE> 10
SCHEDULE I
<TABLE>
<CAPTION>
Number Warrantholders
- ------ --------------
<S> <C>
6 Enterprise Partners III, L.P.
7 Enterprise Partners III Associates, L.P.
8 Mayfield VII
9 Mayfield Associates Fund II
</TABLE>
<PAGE> 1
EXHIBIT 10.20
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT.
PS-_______ Void after
September 10, 2002
WARRANT TO PURCHASE __________ SHARES
OF SERIES A PREFERRED STOCK
of
IRORI
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
THIS CERTIFIES THAT, for value received, _____________________________,
together with its successors and assigns (the "Holder") is entitled to subscribe
for and purchase, on the terms hereof, __________ shares of Series A Preferred
Stock (the "Series A Stock") of Irori, a California corporation (the "Company"),
subject to adjustment as provided herein.
This Warrant is subject to the following terms and conditions:
1. Convertible Demand Promissory Note and Warrant Purchase Agreement.
This Warrant is one of a series of warrants issued pursuant to that certain
Convertible Demand Promissory Note and Warrant Purchase Agreement dated
September 10, 1996 (the "Purchase Agreement") by and among the Company, the
Holder and the other holders of warrants and convertible demand promissory notes
issued in connection with the Purchase Agreement.
2. Exercise of Warrant. The terms and conditions upon which this Warrant
may be exercised, and the Series A Stock covered hereby (the "Warrant Stock")
may be purchased, are as follows:
2.1 Term. Subject to the terms hereof, this Warrant may be
exercised at any time after the date hereof, or from time to time, in whole or
in part; provided, however, that in no event may this Warrant be exercised (the
"Exercise Date") later than 5:00 p.m. (Pacific Time) on
<PAGE> 2
the earlier of (a) the close of business on September 10, 2002, (b)(i) the
closing of the acquisition of the Company by another entity by means of a
transaction or series of related transactions or (ii) the closing of the sale of
all or substantially all of the assets of the Company, unless the Company's
shareholders of record prior to such acquisition or sale shall hold at least
fifty percent (50%) of the voting power of the acquiring or surviving entity
immediately after such acquisition or sale, or (c) the initial underwritten
public offering of the Company's common stock (the "Common Stock") (the
"Exercise Period"). At least ten (10) days prior to the occurrence of an event
specified in (a), (b) or (c) of this Section 2.1, the Company shall send to the
Holder notice of such event and that the Holder's rights under this Warrant
shall terminate upon the occurrence of such event; provided, that if the Company
sends such notice less than ten (10) days prior to the occurrence of such event,
the Holder's right to exercise this Warrant shall be extended for a period of
ten (10) days after the date of the notice, after which time the Holder's rights
under this Warrant shall terminate.
2.2 Purchase Price. The per share purchase price for the shares
of Series A Stock to be issued upon exercise of this Warrant shall be $2.00,
subject to adjustment as provided herein.
2.3 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of a subscription attached
hereto, to the Company at its principal offices and (b) the delivery of the
purchase price by check or bank draft payable to the Company's order or by wire
transfer to the Company's account for the number of shares for which the
purchase rights hereunder are being exercised or any other form of consideration
approved by the Company's Board of Directors. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided herein or at such later date as may be specified in the executed form
of subscription, and at such time the person or persons in whose name or names
any certificate or certificates for shares of Preferred Stock shall be issuable
upon such exercise as provided herein shall be deemed to have become the holder
or holders of record thereof.
2.4 Net Issuance.
2.4.1 Right to Convert. In addition to and without
limiting the rights of the Holder under the terms of this Warrant, the Holder
shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into shares of Series A Stock as provided in this Section
2.4 at any time or from time to time during the Exercise Period. Upon exercise
of the Conversion Right with respect to a particular number of shares subject to
the Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
Holder (without payment by the Holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Series A
Stock computed using the following formula:
X = Y (Z - $2.00)
-------------
Z
Where X = the number of shares of Series A Stock to be delivered
to the Holder
2.
<PAGE> 3
Y = the number of Converted Warrant Shares
Z = the per share fair market value of the Series A Stock
on the Conversion Date (as defined below)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
2.4.2 Method of Exercise. The Conversion Right may be
exercised by the Holder by the surrender of the Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right and indicating the total number
of shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.4.3 Determination of Fair Market Value. For purposes of
this Section 2.4, fair market value of a share of Series A Stock on the
Conversion Date shall mean the fair market value as determined by the Board of
Directors of the Company.
3. Limit on Rights of the Holder upon Exercise. The Holder acknowledges
and agrees that upon the exercise of this Warrant in full or in part, the
following provisions shall apply to the rights of the Holder as a holder of
Series A Stock and of Common Stock that such Series A Stock is convertible into.
3.1 Market Stand-Off Agreement. During the period of duration
(not to exceed 180 days) specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, the Holder shall not,
to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to transferees or donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that this Section
3.1 shall be applicable only to the first such registration statement of the
Company pursuant to which Common Stock (or other securities) of the Company are
to be sold on its behalf to the public in an underwritten offering, and (b) all
officers and directors of the Company and all other persons with registration
rights enter into similar agreements. In order to enforce the foregoing
covenant, the Company may impose stop-transfer
3.
<PAGE> 4
instructions with respect to the Common Stock of the Holder (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
4. Adjustments to Conversion Price. The number and kind of shares of
Series A Stock (or any shares of stock or other securities which may be)
issuable upon the exercise of this Warrant and the exercise price hereunder
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
4.1 Dividends, Distributions, Stock Splits or Combinations. If
the Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of holders of Series A Stock
entitled to receive, a dividend or other distribution payable in additional
shares of common or preferred stock (as the case may be), then and in each such
event the exercise price hereunder then in effect shall be decreased as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the exercise
price hereunder then in effect by a fraction: (a) the numerator of which shall
be the total number of shares of Common Stock (assuming the conversion of all
outstanding securities of the Company that are convertible into Common Stock and
the exercise of all options to purchase Common Stock or securities that are
convertible into Common Stock) issued and outstanding immediately prior to the
time of issuance or the close of business on such record date; and (b) the
denominator of which shall be the total number of shares of Common Stock
(assuming the conversion of all outstanding securities of the Company that are
convertible into Common Stock and the exercise of all options to purchase Common
Stock or securities that are convertible into Common Stock) issued and
outstanding immediately after the time of issuance or the close of business on
such record date. If the Company shall at any time subdivide the outstanding
shares of Series A Stock (or any securities into which such Series A Stock is
convertible), or if the Company shall at any time combine the outstanding shares
of Series A Stock (or any securities into which such Series A Stock is
convertible), then the exercise price hereunder immediately shall be decreased
proportionally (in the case of a subdivision) or increased proportionally (in
the case of a combination). Any such adjustment shall become effective at the
close of business on the date the subdivision or combination becomes effective.
4.2 Reclassification or Reorganization. If the Series A Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 4.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 4.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of Series A Stock (or any shares of
stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
4.
<PAGE> 5
4.3 Merger, Consolidation or Sale of Assets. If at any time or
from time to time there shall be a capital reorganization of the Series A Stock
(or any securities into which such Series A Stock is convertible) (other than a
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 4) or a merger or consolidation of the Company with or
into another corporation, or the sale of all or substantially all of the
Company's assets and properties to any other person or entity, then as a part of
such reorganization, merger, consolidation or sale, provision shall be made so
that the Holder shall thereafter be entitled to receive upon the exercise of
this Warrant, the number of shares of stock or other securities or property of
the Company, or of the successor corporation resulting from such reorganization,
merger, consolidation or sale, to which a holder of the number of shares of
Series A Stock (or any shares of stock or other securities which may be)
issuable upon the exercise of this Warrant would have received if this Warrant
had been exercised immediately prior to such reorganization, merger,
consolidation or sale.
4.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of Series A Stock (or any
shares of stock or other securities which may be) issuable upon the exercise of
this Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which that adjustment or readjustment is based.
In the event of any taking by the Company of a record of the holders of Series A
Stock for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, the Company shall notify the Holder
in writing of such record date at least twenty (20) days prior to the date
specified therein.
4.5 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall at all times reserve and keep
available a number of its authorized shares of Series A Stock (and Common Stock
into which such shares are convertible into such), free from all preemptive
rights therein, which shall be sufficient to permit the exercise of this Warrant
and (b)shall take all such action as may be necessary or appropriate in order
that all shares of Series A Stock (and Common Stock into which such shares are
convertible into) as may be issued pursuant to the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof.
5. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
6. Investment Intent. Unless a current registration statement under the
Securities Act of 1933, as amended, shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder, by accepting
this Warrant, covenants and agrees that, at the time of exercise hereof, and at
the time of any proposed transfer of any securities acquired upon
5.
<PAGE> 6
exercise hereof, the Holder shall deliver to the Company a written statement
that the securities acquired by the Holder upon exercise hereof are for the own
account of the Holder for investment and are not acquired with a view to, or for
sale in connection with, any distribution thereof (or any portion thereof) and
with no present intention (at any such time) of offering or distributing such
securities (or any portion thereof).
7. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase Series A Stock, and no enumeration herein of the rights
or privileges of the Holder, shall give rise to any liability of the Holder as a
shareholder of the Company.
8. Miscellaneous.
8.1 Transfer of Warrant. This Warrant shall not be transferable
or assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
8.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
8.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing and in accordance with Section 6.3 of the Purchase
Agreement (for purposes of which, the term "Investor" shall mean Holder
hereunder), except as otherwise expressly provided in this Warrant.
8.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and disbursements
in addition to any other relief to which such party may be entitled.
8.5 Amendments and Waivers. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of
Warrants representing together the right to purchase at least fifty-one percent
(51%) of all of the Series A Stock of the Company subject to purchase pursuant
to all of the Warrants and in accordance with the Purchase Agreement. Any
amendment or waiver effected in accordance with this Section 8.5 shall be
binding upon the Holder of this Warrant (and of any securities into which this
Warrant is convertible), each future holder of all such securities, and the
Company.
8.6 Severability. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
6.
<PAGE> 7
8.7 Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
7.
<PAGE> 8
8.8 Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Date: May 20, 1998 IRORI, a California corporation
By:____________________________________
Riccardo Pigliucci
Chief Executive Officer
ACKNOWLEDGED AND AGREED:
_________________________________
_________________________________
_________________________________
By:______________________________
Name:____________________________
Its:_____________________________
<PAGE> 9
SCHEDULE 1
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: IRORI
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ________________* shares of Series A Preferred
Stock of IRORI, and herewith makes payment of $ ___________therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to ___________________________________________, whose address is
__________________________________________________________________________.
________________________________________
(Signature must conform in all respects
to name of the Holder as specified on
the face of the Warrant)
________________________________________
(Print Name)
________________________________________
(Address)
Dated: ____________________
- ----------
* Insert here the number of shares as to which the Warrant is being exercised.
<PAGE> 10
Schedule A
<TABLE>
<CAPTION>
<S> <C>
Number Warrant holder Number of shares
- ------ -------------- ----------------
5 Enterprise Partners III, L.P. 81,865
6 Enterprise Partners III Associates, L.P. 7,118
7 Mayfield VIII 84,536
8 Mayfield Associates Fund II 4,448
9 Crosspoint Venture Partners-1996 14,388
</TABLE>
<PAGE> 1
EXHIBIT 10.21
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT.
Void after
September 10, 2002
WARRANT TO PURCHASE 32,634 SHARES
OF COMMON STOCK
of
IRORI
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
THIS CERTIFIES THAT, for value received, Crosspoint Venture
Partners-1996, together with its successors and assigns (the "Holder") is
entitled to subscribe for and purchase, on the terms hereof, 32,634 shares of
Common Stock (the "Common Stock") of Irori, a California corporation (the
"Company"), subject to adjustment as provided herein.
This Warrant is subject to the following terms and conditions:
1. Compliance with Agreements. This Warrant is issued pursuant to a
letter agreement dated November 5, 1996 and an Agreement to Fix the Number of
Warrant Shares dated October 31, 1997, each between the Company and the Holder.
2. Exercise of Warrant. The terms and conditions upon which this Warrant
may be exercised, and the Common Stock covered hereby (the "Warrant Stock") may
be purchased, are as follows:
2.1 Term. Subject to the terms hereof, this Warrant may be
exercised at any time after the date hereof, or from time to time, in whole or
in part; provided, however, that in no event may this Warrant be exercised (the
"Exercise Date") later than 5:00 p.m. (Pacific Time) on the earlier of (a) the
close of business on September 10, 2002, (b) (i) the closing of the acquisition
of the Company by another entity by means of a transaction or series of related
transactions or (ii) the closing of the sale of all or substantially all of the
assets of the Company, unless the Company's shareholders of record prior to such
acquisition or sale shall hold at least
<PAGE> 2
fifty percent (50%) of the voting power of the acquiring or surviving entity
immediately after such acquisition or sale, or (c) the initial underwritten
public offering of the Company's common stock (the "Common Stock") (the
"Exercise Period"). At least ten (10) days prior to the occurrence of an event
specified in (a), (b) or (c) of this Section 2.1, the Company shall send to the
Holder notice of such event and that the Holder's rights under this Warrant
shall terminate upon the occurrence of such event; provided, that if the Company
sends such notice less than ten (10) days prior to the occurrence of such event,
the Holder's right to exercise this Warrant shall be extended for a period of
ten (10) days after the date of the notice, after which time the Holder's rights
under this Warrant shall terminate.
2.2 Purchase Price. The per share purchase price for the shares
of Common Stock to be issued upon exercise of this Warrant shall be $0.20,
subject to adjustment as provided herein.
2.3 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of a subscription attached
hereto, to the Company at its principal offices and (b) the delivery of the
purchase price by check or bank draft payable to the Company's order or by wire
transfer to the Company's account for the number of shares for which the
purchase rights hereunder are being exercised or any other form of consideration
approved by the Company's Board of Directors. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided herein or at such later date as may be specified in the executed form
of subscription, and at such time the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such exercise as provided herein shall be deemed to have become the holder
or holders of record thereof.
2.4 Net Issuance.
2.4.1 Right to Convert. In addition to and without
limiting the rights of the Holder under the terms of this Warrant, the Holder
shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into shares of Common Stock as provided in this Section 2.4
at any time or from time to time during the Exercise Period. Upon exercise of
the Conversion Right with respect to a particular number of shares subject to
the Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
Holder (without payment by the Holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Common
Stock computed using the following formula:
X = Y (Z - $0.20)
-------------
Z
Where X = the number of shares of Common Stock to be delivered to the
Holder
Y = the number of Converted Warrant Shares
2
<PAGE> 3
Z = the per share fair market value of the Common Stock on the
Conversion Date (as defined below)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
2.4.2 Method of Exercise. The Conversion Right may be
exercised by the Holder by the surrender of the Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right and indicating the total number
of shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.4.3 Determination of Fair Market Value. For purposes of
this Section 2.4, fair market value of a share of Common Stock on the Conversion
Date shall mean the fair market value as determined by the Board of Directors of
the Company.
3. Limit on Rights of the Holder upon Exercise. The Holder acknowledges
and agrees that upon the exercise of this Warrant in full or in part, the
following provisions shall apply to the rights of the Holder as a holder of
Common Stock.
3.1 Market Stand-Off Agreement. During the period of duration
(not to exceed 180 days) specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, the Holder shall not,
to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to transferees or donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that this Section
3.1 shall be applicable only to the first such registration statement of the
Company pursuant to which Common Stock (or other securities) of the Company are
to be sold on its behalf to the public in an underwritten offering, and (b) all
officers and directors of the Company and all other persons with registration
rights enter into similar agreements. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Common Stock of the Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period.
3
<PAGE> 4
4. Adjustments to Conversion Price. The number and kind of shares of
Common Stock (or any shares of stock or other securities which may be) issuable
upon the exercise of this Warrant and the exercise price hereunder shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
4.1 Dividends, Distributions, Stock Splits or Combinations. If
the Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of common or preferred stock (as the case may be), then and in each such
event the exercise price hereunder then in effect shall be decreased as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the exercise
price hereunder then in effect by a fraction: (a) the numerator of which shall
be the total number of shares of Common Stock (assuming the conversion of all
outstanding securities of the Company that are convertible into Common Stock and
the exercise of all options to purchase Common Stock or securities that are
convertible into Common Stock) issued and outstanding immediately prior to the
time of issuance or the close of business on such record date; and (b) the
denominator of which shall be the total number of shares of Common Stock
(assuming the conversion of all outstanding securities of the Company that are
convertible into Common Stock and the exercise of all options to purchase Common
Stock or securities that are convertible into Common Stock) issued and
outstanding immediately after the time of issuance or the close of business on
such record date. If the Company shall at any time subdivide the outstanding
shares of Common Stock, or if the Company shall at any time combine the
outstanding shares of Common Stock, then the exercise price hereunder
immediately shall be decreased proportionally (in the case of a subdivision) or
increased proportionally (in the case of a combination). Any such adjustment
shall become effective at the close of business on the date the subdivision or
combination becomes effective.
4.2 Reclassification or Reorganization. If the Common Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 4.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 4.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of Common Stock (or any shares of
stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
4.3 Merger, Consolidation or Sale of Assets. If at any time or
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's assets and properties to any other person or entity, then
as a
4
<PAGE> 5
part of such reorganization, merger, consolidation or sale, provision shall be
made so that the Holder shall thereafter be entitled to receive upon the
exercise of this Warrant, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the number
of shares of Common Stock (or any shares of stock or other securities which may
be) issuable upon the exercise of this Warrant would have received if this
Warrant had been exercised immediately prior to such reorganization, merger,
consolidation or sale.
4.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of Common Stock (or any shares
of stock or other securities which may be) issuable upon the exercise of this
Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which that adjustment or readjustment is based.
In the event of any taking by the Company of a record of the holders of Common
Stock for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, the Company shall notify the Holder
in writing of such record date at least twenty (20) days prior to the date
specified therein.
4.5 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall at all times reserve and keep
available a number of its authorized shares of Common Stock, free from all
preemptive rights therein, which shall be sufficient to permit the exercise of
this Warrant and (b) shall take all such action as may be necessary or
appropriate in order that all shares of Common Stock as may be issued pursuant
to the exercise of this Warrant shall, upon issuance, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
5. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
6. Investment Intent. Unless a current registration statement under the
Securities Act of 1933, as amended, shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder, by accepting
this Warrant, covenants and agrees that, at the time of exercise hereof, and at
the time of any proposed transfer of any securities acquired upon exercise
hereof, the Holder shall deliver to the Company a written statement that the
securities acquired by the Holder upon exercise hereof are for the own account
of the Holder for investment and are not acquired with a view to, or for sale in
connection with, any distribution thereof (or any portion thereof) and with no
present intention (at any such time) of offering or distributing such securities
(or any portion thereof).
5
<PAGE> 6
7. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase Common Stock, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder as a
shareholder of the Company.
8. Miscellaneous.
8.1 Transfer of Warrant. This Warrant shall not be transferable
or assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
8.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
8.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing.
8.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and disbursements
in addition to any other relief to which such party may be entitled.
8.5 Amendments and Waivers. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of
Warrants representing together the right to purchase at least fifty-one percent
(51%) of all of the Common Stock of the Company subject to purchase pursuant to
the original 32,634-share Warrants. Any amendment or waiver effected in
accordance with this Section 8.5 shall be binding upon the Holder of this
Warrant (and of any securities into which this Warrant is convertible), each
future holder of all such securities, and the Company.
8.6 Severability. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8.7 Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
8.8 Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Date: May 20, 1998 IRORI, a California corporation
By: /s/ Jack Fitzpatrick
-----------------------------------
Jack Fitzpatrick
Chief Financial Officer
ACKNOWLEDGED AND AGREED:
CROSSPOINT VENTURE PARTNERS-1996
By: /s/ Donald Milder
----------------------------
Name: Don Milder
Its: General Partner
<PAGE> 8
SCHEDULE 1
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: IRORI
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, * shares of Common Stock of IRORI, and herewith
makes payment of $_________ therefor, and requests that the certificates for
such shares be issued in the name of, and delivered to ________________________,
whose address is _________________________________________.
________________________________________
(Signature must conform in all respects
to name of the Holder as specified on
the face of the Warrant)
________________________________________
(Print Name)
________________________________________
(Address)
Dated: ________________
- --------------
* Insert here the number of shares as to which the Warrant is being
exercised.
<PAGE> 1
EXHIBIT 10.22
PLEDGE AGREEMENT
In consideration of the loan which Discovery Partners International,
Inc., a California corporation (the "Company") having its principal offices at
11149 North Torrey Pines Road, La Jolla, CA 92037, has on this day extended to
the undersigned Riccardo Pigliucci and as security for the payment of that
certain promissory note ("Note") in the principal sum of $172,000.00 payable to
the Company or order which the undersigned has on this day executed to evidence
such loan, the undersigned hereby grants the Company a security interest in, and
pledges with the Company, the following securities and other property:
(i) 430,000 shares of the Company's Common Stock represented by share
certificate no. 54 (the "Shares");
(ii) any and all new, additional or different securities subsequently
distributed with respect to the shares identified in (i) above which are to be
delivered to and deposited with the Company Secretary pursuant to the
requirements of Section 3 of this Agreement:
(iii) any and all other property and money which is delivered to or
comes into possession of the Company pursuant to the terms and provisions of
this Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the property
and securities described in (i), (ii), or (iii) above.
All securities, property and money so assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral." The
Company shall hold the Collateral in accordance with the following terms and
provisions:
1. Warranties. The undersigned hereby warrants that the undersigned is
the owner of the Collateral and has the right to pledge the Collateral and that
the Collateral is free from liens, adverse claims and other security interests
(other than the Company's repurchase rights against the Shares).
2. Rights and Powers. The Company may, without obligation to do so,
exercise at any time and from time to time one or more of the following rights
and powers with respect to any or all of the collateral:
a. accept in its discretion other property of the undersigned in
exchange for all or part of the Collateral and release Collateral to the
undersigned to the extent necessary to effect such exchange, and in such event
the money, property or securities received in the exchange shall be held by the
Company as substitute security for the Note and all other indebtedness secured
hereunder;
b. perform such acts as are necessary to preserve and protect the
Collateral and the rights, powers and remedies granted with respect to such
Collateral by this Agreement; and
<PAGE> 2
c. receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Collateral, provided and only if there exists at the time an
outstanding event of default under Section 8 of this Agreement.
Expenses reasonably incurred in the exercise of such rights and
powers shall be payable by the undersigned and form part of the indebtedness
secured hereunder as provided in Section 10.
So long as there exists no event of default under Section 8 of this
Agreement, the undersigned may exercise all shareholder voting rights and be
entitled to receive any cash distributions with respect to the Collateral.
Accordingly, until such time as an event of default occurs under this Agreement,
all shareholder meeting notices and other shareholder materials which the
Company receives with respect to the Collateral shall be delivered to the
undersigned at the address indicated below.
3. Duty to Deliver. Any Shares and any new, additional or different
securities which may now or hereafter become distributable with respect to the
Collateral by reason of a stock dividend, stock split or reclassification of the
capital stock of the Company or by reason of a merger, consolidation or other
reorganization affecting the capital structure of the Company shall, upon
receipt by the undersigned, be promptly delivered to and deposited with the
Company Secretary as part of the Collateral hereunder. Such securities shall be
accompanied by one or more properly endorsed stock power assignments.
4. Care of Collateral. The Company shall exercise reasonable care in the
custody and preservation of the Collateral, but shall have no obligation to
initiate any action with respect to, or otherwise inform the undersigned of, any
conversion, call, exchange right, preemption right, subscription right, purchase
offer or other right or privilege relating to or affecting the Collateral. The
Company shall have no duty to preserve the rights of the undersigned against
adverse claims or to protect the Collateral against the possibility of a decline
in market value. The Company shall not be obligated to take any action with
respect to the Collateral requested by the undersigned unless the request is
made in writing and the Company determines that the requested action will not
unreasonably jeopardize the value of the Collateral as security for the Note and
other indebtedness secured hereunder.
The Company may at any time deliver all or part of the Collateral
to the undersigned, and the receipt thereof by the undersigned shall constitute
a complete and full acquittance for the Collateral so delivered. The Company
shall accordingly be discharged from any further liability or responsibility for
the delivered Collateral.
5. Payment of Taxes and Other Charges. The undersigned shall pay, prior
to the delinquency date, all taxes, liens, assessments and other charges against
the Collateral, and in the event of the undersigned's failure to do so, the
Company may at its election pay any or all of such taxes and charges without
contesting the validity of legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and shall be payable immediately by
the undersigned, without demand, and until paid shall bear interest at the same
rate as provided for in the Note.
2
<PAGE> 3
6. Transfer of Collateral. In connection with the transfer or assignment
of the Note (whether by negotiation, discount or otherwise), the Company may
transfer all or any part of the Collateral, and the transferee shall thereupon
succeed to all the rights, powers and remedies granted the Company hereunder
with respect to the Collateral so transferred. Upon such transfer, the Company
shall be fully discharged from all liability and responsibility for the
transferred Collateral.
7. Release of Collateral. Provided all indebtedness secured hereunder
shall at the time have been paid in full, any Shares and other Collateral shall
be released from pledge and returned to the undersigned.
8. Events of Default. The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
a. failure of the undersigned to pay when due under the Note
(either at scheduled maturity or upon acceleration) any principal or accrued
interest;
b. the occurrence of any event of default specified in the Note;
c. the failure of the undersigned to perform any obligation imposed
upon the undersigned by reason of this Agreement; or
d. the breach of any warranty of the undersigned contained in this
Agreement.
Upon the occurrence of any such event of default, the Company may,
at its election, declare the Note and all other indebtedness secured hereunder
to become immediately due and payable and may exercise any or all of the rights
and remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder. Any proceeds realized from the disposition of the Collateral
pursuant to the power of sale hereby granted to the Company shall first be
applied to the payment of expenses incurred by the Company in connection with
the disposition, and the balance shall be applied to the payment of the Note and
any other indebtedness secured hereunder in such order of application as the
Company shall deem appropriate. Any surplus proceeds shall be paid over to the
undersigned. In the event such proceeds prove insufficient to satisfy all
indebtedness secured hereunder, then the undersigned shall be personally liable
for the deficiency.
9. Other Remedies. The rights, powers and remedies granted to the
Company pursuant to the provisions of this agreement shall be in addition to all
rights, powers and remedies granted to the Company under any statute or rule of
law. Any forbearance, failure or delay by the Company in exercising any right,
power or remedy under this Agreement shall not be deemed to be a waiver of such
right, power or remedy. Any single or partial exercise of any right, power or
remedy under this Agreement shall not preclude the further exercise thereof, and
every right, power and remedy of the Company under this Agreement shall continue
in full force and effect until such right, power or remedy is specifically
waived by an instrument executed by the Company.
3
<PAGE> 4
10. Costs and Expenses. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company in the exercise or enforcement of any
right, power, or remedy granted it under this Agreement shall become part of the
indebtedness secured hereunder and shall be payable immediately by the
undersigned, without demand, and until paid shall bear interest at the maximum
rate permitted by law.
11. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California and shall be
binding upon the executors, administrators, heirs and assigns of the
undersigned.
12. Severability. If any provision of this Agreement is held to be
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provision nor
any other provisions of this Agreement shall be affected thereby.
13. Amendment. This Agreement may not be amended except in a writing
signed by the undersigned and the Company.
14. Entire Agreement. This Agreement constitutes the entire agreement of
the undersigned and the Company with regard to the subject matter hereof, and
supersedes all prior or contemporaneous discussions, negotiations,
understandings and agreements, whether written or oral.
IN WITNESS WHEREOF, this Pledge Agreement has been executed by the
undersigned on this 30th day of November, 1998.
/s/ Riccardo Pigliucci
--------------------------------------
Riccardo Pigliucci
Address:
--------------------------------------
--------------------------------------
--------------------------------------
Agreed to and Accepted by:
Discovery Partners International, Inc.
By: /s/ Jack Fitzpatrick
---------------------------------
Jack Fitzpatrick
Chief Financial Officer
4
<PAGE> 1
PROMISSORY NOTE EXHIBIT 10.23
$172,000.00 San Diego, CA
November 30, 1998
For value received, the undersigned hereby promises to pay to Discovery
Partners International, Inc., a California corporation, or order (the "Holder")
at 11149 North Torrey Pines Road, La Jolla, CA 92037, the principal amount of
One Hundred Seventy Two Thousand Dollars ($172,000.00), plus interest accrued
thereon.
This Promissory Note shall bear 4.51 percent simple interest per annum,
until due (upon maturity or acceleration), and after it is due (upon maturity or
acceleration) shall bear interest at 10 percent per annum, compounded annually.
Accrued interest shall be due and payable on each anniversary of the
date of this Promissory Note. All principal and remaining accrued interest shall
be due and payable in a lump sum on November 30, 2005.
This Promissory Note may be prepaid at any time, without premium or
penalty; provided, that any such prepayment must be of the entire principal
amount plus all accrued interest.
Upon the happening of any of the following events, Holder may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Promissory Note, together with all interest thereon, plus any other
amounts payable at the time of such declaration pursuant to this Promissory
Note. Such events are the following: (1) the maker of this Promissory Note
("Maker") shall admit in writing his inability to pay his debts as they become
due, shall make a general assignment for the benefit of creditors or shall file
any petition or action for relief under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors; or (2) an involuntary petition shall be filed against
Maker under any bankruptcy, reorganization, insolvency or moratorium law, or any
other law or laws for the relief of, or relating to, debtors unless such
petition shall be dismissed or vacated within sixty (60) days of the date
thereof; or (3) Maker shall fall to make any payment of interest when due; or
(4) Maker's employment with the Holder shall, for any reason whatsoever, cease.
This Promissory Note is secured by a Pledge Agreement of even date
herewith. This is a full-recourse Promissory Note. The Holder is not required to
proceed first against the Pledge Agreement collateral.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express consent of
Holder except as and to the extent otherwise provided by law.
The Maker of this Promissory Note waives diligence, presentment, protest
and demand and also notice of protest, demand, dishonor and nonpayment of this
Promissory Note, and expressly agrees that this Promissory Note, or any payment
hereunder, may be extended from
<PAGE> 2
time to time and consents to the acceptance of security, if any, or the release
of security, if any, from this Promissory Note, all without in any way affecting
the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note, or any instrument securing this Promissory
Note, or any and all obligations or liabilities arising out of or in connection
with this Promissory Note, is expressly waived by Maker to the fullest extent
permitted by law.
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by Maker even if it
is not a party to such agreement.
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of
Maker, Maker shall be liable to pay to Holder immediately and without demand all
reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made on appeal or through a bankruptcy court, and
all such sums shall be fully secured by all instruments, if any, securing this
Promissory Note.
The provisions of this Promissory Note are intended by Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.
/s/ Riccardo Pigliucci
----------------------------------------
Riccardo Pigliucci
2
<PAGE> 1
EXHIBIT 10.24
PLEDGE AGREEMENT
In consideration of the loan which Discovery Partners International,
Inc., a California corporation (the "Company") having its principal offices at
11149 North Torrey Pines Road, La Jolla, CA 92037, has on this day extended to
the undersigned Riccardo Pigliucci and as security for the payment of that
certain promissory note ("Note") in the principal sum of $68,000.00 payable to
the Company or order which the undersigned has on this day executed to evidence
such loan, the undersigned hereby grants the Company a security interest in, and
pledges with the Company, the following securities and other property:
(i) 170,000 shares of the Company's Common Stock represented by share
certificate no. ____ (the "Shares");
(ii) any and all new, additional or different securities subsequently
distributed with respect to the shares identified in (i) above which are to be
delivered to and deposited with the Company Secretary pursuant to the
requirements of Section 3 of this Agreement:
(iii) any and all other property and money which is delivered to or
comes into possession of the Company pursuant to the terms and provisions of
this Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the property
and securities described in (i), (ii), or (iii) above.
All securities, property and money so assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral". The
Company shall hold the Collateral in accordance with the following terms and
provisions:
1. Warranties. The undersigned hereby warrants that the undersigned is
the owner of the Collateral and has the right to pledge the Collateral and that
the Collateral is free from liens, adverse claims and other security interests
(other than the Company's repurchase rights against the Shares).
2. Rights and Powers. The Company may, without obligation to do so,
exercise at any time and from time to time one or more of the following rights
and powers with respect to any or all of the collateral:
a. accept in its discretion other property of the undersigned in
exchange for all or part of the Collateral and release Collateral to the
undersigned to the extent necessary to effect such exchange, and in such event
the money, property or securities received in the exchange shall be held by the
Company as substitute security for the Note and all other indebtedness secured
hereunder;
b. perform such acts as are necessary to preserve and protect the
Collateral and the rights, powers and remedies granted with respect to such
Collateral by this Agreement; and
c. receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Collateral, provided
<PAGE> 2
and only if there exists at the time an outstanding event of default under
Section 8 of this Agreement.
Expenses reasonably incurred in the exercise of such rights and powers
shall be payable by the undersigned and form part of the indebtedness secured
hereunder as provided in Section 10.
So long as there exists no event of default under Section 8 of this
Agreement, the undersigned may exercise all shareholder voting rights and be
entitled to receive any cash distributions with respect to the Collateral.
Accordingly, until such time as an event of default occurs under this Agreement,
all shareholder meeting notices and other shareholder materials which the
Company receives with respect to the Collateral shall be delivered to the
undersigned at the address indicated below.
3. Duty to Deliver. Any Shares and any new, additional or different
securities which may now or hereafter become distributable with respect to the
Collateral by reason of a stock dividend, stock split or reclassification of the
capital stock of the Company or by reason of a merger, consolidation or other
reorganization affecting the capital structure of the Company shall, upon
receipt by the undersigned, be promptly delivered to and deposited with the
Company Secretary as part of the Collateral hereunder. Such securities shall be
accompanied by one or more properly endorsed stock power assignments.
4. Care of Collateral. The Company shall exercise reasonable care in the
custody and preservation of the Collateral, but shall have no obligation to
initiate any action with respect to, or otherwise inform the undersigned of, any
conversion, call, exchange right, preemption right, subscription right, purchase
offer or other right or privilege relating to or affecting the Collateral. The
Company shall have no duty to preserve the rights of the undersigned against
adverse claims or to protect the Collateral against the possibility of a decline
in market value. The Company shall not be obligated to take any action with
respect to the Collateral requested by the undersigned unless the request is
made in writing and the Company determines that the requested action will not
unreasonably jeopardize the value of the Collateral as security for the Note and
other indebtedness secured hereunder.
The Company may at any time deliver all or part of the Collateral to
the undersigned, and the receipt thereof by the undersigned shall constitute a
complete and full acquittance for the Collateral so delivered. The Company shall
accordingly be discharged from any further liability or responsibility for the
delivered Collateral.
5. Payment of Taxes and Other Charges. The undersigned shall pay, prior
to the delinquency date, all taxes, liens, assessments and other charges against
the Collateral, and in the event of the undersigned's failure to do so, the
Company may at its election pay any or all of such taxes and charges without
contesting the validity of legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and shall be payable immediately by
the undersigned, without demand, and until paid shall bear interest at the same
rate as provided for in the Note.
2
<PAGE> 3
6. Transfer of Collateral. In connection with the transfer or assignment
of the Note (whether by negotiation, discount or otherwise), the Company may
transfer all or any part of the Collateral, and the transferee shall thereupon
succeed to all the rights, powers and remedies granted the Company hereunder
with respect to the Collateral so transferred. Upon such transfer, the Company
shall be fully discharged from all liability and responsibility for the
transferred Collateral.
7. Release of Collateral. Provided all indebtedness secured hereunder
shall at the time have been paid in full, any Shares and other Collateral shall
be released from pledge and returned to the undersigned.
8. Events of Default. The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
a. failure of the undersigned to pay when due under the Note (either
at scheduled maturity or upon acceleration) any principal or accrued interest;
b. the occurrence of any event of default specified in the Note;
c. the failure of the undersigned to perform any obligation imposed
upon the undersigned by reason of this Agreement; or
d. the breach of any warranty of the undersigned contained in this
Agreement.
Upon the occurrence of any such event of default, the Company may, at
its election, declare the Note and all other indebtedness secured hereunder to
become immediately due and payable and may exercise any or all of the rights and
remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder. Any proceeds realized from the disposition of the Collateral
pursuant to the power of sale hereby granted to the Company shall first be
applied to the payment of expenses incurred by the Company in connection with
the disposition, and the balance shall be applied to the payment of the Note and
any other indebtedness secured hereunder in such order of application as the
Company shall deem appropriate. Any surplus proceeds shall be paid over to the
undersigned. In the event such proceeds prove insufficient to satisfy all
indebtedness secured hereunder, then the undersigned shall be personally liable
for the deficiency.
9. Other Remedies. The rights, powers and remedies granted to the
Company pursuant to the provisions of this agreement shall be in addition to all
rights, powers and remedies granted to the Company under any statute or rule of
law. Any forbearance, failure or delay by the Company in exercising any right,
power or remedy under this Agreement shall not be deemed to be a waiver of such
right, power or remedy. Any single or partial exercise of any right, power or
remedy under this Agreement shall not preclude the further exercise thereof, and
every right, power and remedy of the Company under this Agreement shall continue
in full force and effect until such right, power or remedy is specifically
waived by an instrument executed by the Company.
3
<PAGE> 4
10. Costs and Expenses. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company in the exercise or enforcement of any
right, power, or remedy granted it under this Agreement shall become part of the
indebtedness secured hereunder and shall be payable immediately by the
undersigned, without demand, and until paid shall bear interest at the maximum
rate permitted by law.
11. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California and shall be
binding upon the executors, administrators, heirs and assigns of the
undersigned.
12. Severability. If any provision of this Agreement is held to be
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provision nor
any other provisions of this Agreement shall be affected thereby.
13. Amendment. This Agreement may not be amended except in a writing
signed by the undersigned and the Company.
14. Entire Agreement. This Agreement constitutes the entire agreement of
the undersigned and the Company with regard to the subject matter hereof, and
supersedes all prior or contemporaneous discussions, negotiations,
understandings and agreements, whether written or oral.
IN WITNESS WHEREOF, this Pledge Agreement has been executed by the
undersigned on this 31st day of January, 1999.
/s/ Riccardo Pigliucci
--------------------------------------------
Riccardo Pigliucci
Address: P.O. Box 853
Santa Fe, CA 92067
Agreed to and Accepted by:
Discovery Partners International, Inc.
By: /s/ Jack Fitzpatrick
--------------------------------------------
Jack Fitzpatrick
Chief Financial Officer
4
<PAGE> 1
EXHIBIT 10.25
PROMISSORY NOTE
$68,000.00 San Diego, CA
January 31, 1999
For value received, the undersigned hereby promises to pay to Discovery
Partners International, Inc., a California corporation, or order (the "Holder")
at 11149 North Torrey Pines Road, La Jolla, CA 92037, the principal amount of
Sixty Eight Thousand Dollars ($68,000.00), plus interest accrued thereon.
This Promissory Note shall bear 4.64 percent simple interest per annum,
until due (upon maturity or acceleration), and after it is due (upon maturity or
acceleration) shall bear interest at 10 percent per annum, compounded annually.
Accrued interest shall be due and payable on each anniversary of the
date of this Promissory Note. All principal and remaining accrued interest shall
be due and payable in a lump sum on January 31, 2006.
This Promissory Note may be prepaid at any time, without premium or
penalty; provided, that any such prepayment must be of the entire principal
amount plus all accrued interest.
Upon the happening of any of the following events, Holder may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Promissory Note, together with all interest thereon, plus any other
amounts payable at the time of such declaration pursuant to this Promissory
Note. Such events are the following: (1) the maker of this Promissory Note
("Maker") shall admit in writing his inability to pay his debts as they become
due, shall make a general assignment for the benefit of creditors or shall file
any petition or action for relief under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors; or (2) an involuntary petition shall be filed against
Maker under any bankruptcy, reorganization, insolvency or moratorium law, or any
other law or laws for the relief of, or relating to, debtors unless such
petition shall be dismissed or vacated within sixty (60) days of the date
thereof; or (3) Maker shall fail to make any payment of interest when due; or
(4) Maker's employment with the Holder shall, for any reason whatsoever, cease.
This Promissory Note is secured by a Pledge Agreement of even date
herewith. This is a full-recourse Promissory Note. The Holder is not required to
proceed first against the Pledge Agreement collateral.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express consent of
Holder except as and to the extent otherwise provided by law.
The Maker of this Promissory Note waives diligence, presentment, protest
and demand and also notice of protest, demand, dishonor and nonpayment of this
Promissory Note, and
<PAGE> 2
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consents to the acceptance of security, if any,
or the release of security, if any, from this Promissory Note, all without in
any way affecting the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note, or any instrument securing this Promissory
Note, or any and all obligations or liabilities arising out of or in connection
with this Promissory Note, is expressly waived by Maker to the fullest extent
permitted by law.
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by Maker even if it
is not a party to such agreement.
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of
Maker, Maker shall be liable to pay to Holder immediately and without demand all
reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made on appeal or through a bankruptcy court, and
all such sums shall be fully secured by all instruments, if any, securing this
Promissory Note.
The provisions of this Promissory Note are intended by Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.
/s/ Riccardo Pigliucci
--------------------------------------
Riccardo Pigliucci
2
<PAGE> 1
EXHIBIT 10.26
PROMISSORY NOTE AND
WARRANT PURCHASE AGREEMENT
THIS PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is made as of December 10, 1999, among Discovery Partners
International, Inc., a California corporation (the "Company"), and each of the
investors listed on Exhibit A attached hereto (each individually, an "Investor"
and collectively, the "Investors").
RECITALS
WHEREAS, each Investor desires to purchase from the Company, and
the Company desires to sell and issue to each Investor, a Promissory Note in
substantially the same form as Exhibit B attached hereto (each, a "Note" and
collectively, the "Notes") in the principal amount set forth opposite each
Investor's name on Exhibit A attached hereto under the headings "Principal
Amount of Notes"; and
WHEREAS, each Investor desires to purchase from the Company, and
the Company desires to sell and issue to each Investor, Warrants in
substantially the same form as Exhibit C attached hereto and on the terms and
conditions set forth herein (each, a "Warrant" and collectively, the
"Warrants"), such Warrants to purchase that number of shares of the Company's
capital stock ("Exercise Stock") as determined pursuant to the terms and
conditions of this Agreement and the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereby agree as
follows:
1. Purchase and Sale of Notes and Warrants.
1.1 Purchase and Sale of Notes and Warrants. Subject to the terms
and conditions of this Agreement, each Investor agrees, severally and not
jointly, to purchase at the Closing and the Company agrees to sell and issue to
each Investor, severally and not jointly, at the Closing (a) a Note in
substantially the same form as attached hereto as Exhibit B, in the principal
amount set forth opposite that Investor's name on Exhibit A attached hereto
under the heading "Principal Amount of Notes" at a price equal to 100% of the
principal amount thereof, up to an aggregate amount of $4,000,000.00 and (b)
Warrants to purchase such variable number of shares of Exercise Stock as set
forth by the terms of this Agreement and of each Warrant in substantially the
same form as attached hereto as Exhibit C.
1.2 Closing.
(a) The purchase and sale of the Notes and the Warrants
shall occur at the offices of Brobeck, Phleger & Harrison LLP, 550 West C
Street, Suite 1300, San Diego, California, at 10:00 a.m. on December 10, 1999,
or at such other time and place as the Company
<PAGE> 2
and Investors acquiring more than half the aggregate principal amount of the
Notes sold pursuant hereto shall mutually agree in writing (the "Closing").
(b) At the Closing, the Company shall deliver to each
Investor the Note and Warrant that such Investor is purchasing against payment
by check or wire transfer of the Principal Amount of Notes set forth across from
each Investor's name on attached Exhibit A.
1.3 Allocation of Purchase Price to Warrants. The Company hereby
allocates to the Warrants a purchase price of $0.01 for each share of Exercise
Stock that each Warrant is exercisable into and such purchase price shall be
retained from the interest that accrued on such Investor's Note by the Company
at the time such Investor's Note is paid in full.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to and for the benefit of each Investor, with knowledge
that each Investor is relying thereon in entering into this Agreement and
purchasing the Notes and the Warrants from the Company, that the following are
true and correct:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on the operation of its business or properties.
2.2 Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Notes and the Warrants has been
taken or will be taken prior to the Closing, and this Agreement, the Notes and
the Warrants constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
2.3 Disclosure. The Company has fully provided each Investor with
all the information which such Investor has requested for deciding whether to
purchase the Notes and the Warrants and all information which the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither this Agreement nor any other written statements or certificates made or
delivered in connection herewith or therewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
in this Agreement or therein not misleading.
3. Representations and Warranties of the Investors. Each Investor hereby
separately and not jointly represents and warrants to and for the benefit of the
Company, with knowledge that the Company is relying thereon in entering into
this Agreement and issuing the Notes and Warrants to such Investor, as follows:
<PAGE> 3
3.1 Purchase Entirely for Own Account. By each Investor's execution
of this Agreement, such Investor hereby confirms that the Notes and Warrants to
be received by such Investor, and the capital stock issuable upon exercise of
the Warrants (collectively, and also including any further underlying
securities, the "Securities") shall be acquired for investment for such
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 such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities. Each
Investor represents that it has full power and authority to enter into this
Agreement.
3.2 Investment Experience. Each 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 Securities.
3.3 Accredited Investor. Each Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as now in effect.
3.4 Restricted Securities. Each Investor understands that the
Securities it is and shall be 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 "Act"),
only in certain limited circumstances. In this connection, each Investor
represents that it is familiar with Rule 144 promulgated under the Act, as now
in effect, and understands the resale limitations imposed thereby and by the
Act.
3.5 Legends. Each Investor understands that the certificates
evidencing the Securities may bear one or all of the following legends:
(a) The securities evidenced by this certificate have not
been registered under the Securities Act of 1933, as amended (the "Act") or the
securities laws of any state of the United States. The securities evidenced by
this certificate may not be offered, sold or transferred for value directly or
indirectly, in the absence of such registration under the Act and qualification
under applicable state laws, or pursuant to an exemption from registration under
the Act and qualification under applicable state laws, the availability of which
is to be established to the reasonable satisfaction of the Company.
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
(c) A legend giving notice of Section 6.
<PAGE> 4
4. Restrictions on Disposition. Without in any way limiting the
representations set forth in Section 3 above, each Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 4, and in addition thereto, one of the following conditions is
satisfied:
4.1 Securities Registered. There is then in effect a registration
statement under the Act covering such proposed disposition and such disposition
is made in accordance with such registration statement.
4.2 Registration Not Required. Such Investor shall have (i)
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, furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such securities under the Act.
4.3 Other Permitted Transfers. The disposition is by an Investor
which is a partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his spouse or to the siblings, lineal descendants including
adopted children or ancestors of such partner or his spouse, if, prior to such
transfer, the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he were an original Investor hereunder. Notwithstanding
any of the foregoing, transferability of the Notes are further restricted by
their terms.
5. California Commissioner of Corporations.
5.1 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 FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION 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.
6. Market Stand-Off Agreement. During the period of duration (not
to exceed 180 days) specified by the Company and an underwriter of Common Stock
or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, each Investor shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to transferees or donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration;
<PAGE> 5
provided, however, that this Section 6 shall be applicable only to the first
such registration statement of the Company pursuant to which Common Stock (or
other securities) of the Company are 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 securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
7. General Provisions.
7.1 Construction. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of California,
without giving effect to its conflicts of laws principles.
7.2 Entire Agreement. This Agreement, together with the agreements
and documents referred to herein, constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
and contemporaneous negotiations, agreements and understandings.
7.3 Notices. All payments, notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given at the earlier of (i) the time of actual delivery or (ii) on the
third business day following the date deposited with the United States Postal
Service, postage prepaid, certified with return receipt requested, to the
parties at the following addresses or at such other address as shall be given in
writing by a party to the other parties:
Investors: At the address set forth below their
names on Exhibit A attached hereto.
The Company:
9640 Towne Centre Drive
San Diego, CA 92121
Attn: President
7.4 Successors and Assigns. This Agreement, and the rights and
obligations of each of the parties hereunder, may not be assigned by any
Investor without the prior written consent of the Company. Subject to the
foregoing sentence, this Agreement shall inure to the benefit of, and shall be
binding upon, the parties and their successors and assigns.
7.5 Severability. If any term, covenant or condition of this
Agreement is held to be invalid, void or otherwise unenforceable by any court of
competent jurisdiction, the remainder of this Agreement shall not be affected
thereby and each term, covenant and condition of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
7.6 Modification. 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), with the written
consent of the Company and the holders of at least fifty-one percent (51%) of
the aggregate principal amount of the Notes
<PAGE> 6
then outstanding. Any amendment or waiver effected in accordance with this
Section 7.6 shall be binding upon all parties to this Agreement, including,
without limitation, any Investors who may not have executed such amendment or
waiver, and each future holder of any Exercise Stock that the holder of any
Warrant is entitled to receive upon the exercise of such Warrant.
7.7 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to an award of its reasonable attorneys' fees, costs and
disbursements in addition to any other relief to which such party may be
entitled.
7.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
COMPANY: DISCOVERY PARTNERS INTERNATIONAL, INC., a
California corporation
By: /s/ Jack Fitzpatrick
------------------------------------------------------
Jack Fitzpatrick, Chief Financial Officer
Address: 9640 Towne Centre Drive
San Diego, CA 92121
INVESTORS: ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By: /s/ Andrew Senyei
---------------------------------------
General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.,
Its General Partner
By: /s/ Andrew Senyei
---------------------------------------
General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
[SIGNATURE PAGE TO PROMISSORY
NOTE AND WARRANT PURCHASE AGREEMENT]
<PAGE> 8
MAYFIELD VIII
By: Mayfield VIII Management, L.L.C., Its
General Partner
By: /s/ A. Grant Heidrich III
---------------------------------------
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MAYFIELD ASSOCIATES FUND II
By: /s/ A. Grant Heidrich III
----------------------------------------------
General Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
[SIGNATURE PAGE TO PROMISSORY
NOTE AND WARRANT PURCHASE AGREEMENT]
<PAGE> 9
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
INVESTOR NAME AND ADDRESS OF NOTES
- ------------------------- ----------------
<S> <C>
Enterprise Partners III, L.P. $1,852,793
7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
Attn: Andrew Senyei
Enterprise Partners III Associates, L.P. $147,207
7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
Attn: Andrew Senyei
Mayfield VIII $1,900,000
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: A. Grant Heidrich, III
Mayfield Associates Fund II $100,000
2800 Sand Hill Road ----------
Menlo Park, CA 94025
Attn: A. Grant Heidrich, III
Total: $4,000,000
==========
</TABLE>
<PAGE> 10
Exhibit B
$ San Diego, California
-----------
Note No. 99-
DISCOVERY PARTNERS INTERNATIONAL, INC.
PROMISSORY NOTE
Discovery Partners International, Inc., a California corporation
(the "Company"), for value received, hereby promises to pay to (the "Holder"),
the principal amount of ($ ) (the "Issue Price"), together with interest on the
unpaid amount thereof in accordance with the terms hereof, from the date hereof
until paid in accordance with the terms hereof.
1. Promissory Note ("Note").
1.1 Interest Rate. The rate of interest hereunder ("Interest Rate")
shall equal eight percent (8%) per annum, and shall be computed on the basis of
a 365 day year for the actual number of days elapsed.
1.2 Payment. The Issue Price plus all accrued but previously unpaid
interest thereon shall become due and payable on the earlier of (a) the closing
of a subsequent equity financing in which shares of the Company's Preferred
Stock are issued or (b) February 10, 2000. Payment and any prepayment under
Section 1.3 below shall be made at the offices or residence of the Holder, or at
such other place as the Holder shall have designated to the Company in writing,
in lawful money of the United States of America.
1.3 Prepayment. This Note may be prepaid, in whole or in part, at
any time without premium or penalty.
1.4 Note and Warrant Purchase Agreement. This Note is one of a
series of Promissory Notes (collectively, the "Notes") issued by the Company in
connection with that certain Promissory Note and Warrant Purchase Agreement
dated as of the date hereof (the "Agreement") among the Company, Holder and the
holders of the other Notes, and is subject to, and Holder and the Company shall
be bound by, all the terms, conditions and provisions of the Agreement.
2. Miscellaneous.
2.1 Transfer of Note. This Note shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by the Holder without the express written consent of the Company, and
any such attempted disposition of this Note or any portion hereof shall be of no
force or effect.
2.2 Titles and Subtitles. The titles and subtitles used in this
Note are for convenience only and are not to be considered in construing or
interpreting this Note.
<PAGE> 11
2.3 Notices. Any notice required or permitted under this Note shall
be given in writing and in accordance with Section 6.3 of the Agreement (for
purposes of which the term "Investor" shall mean the Holder hereunder), except
as otherwise expressly provided in this Note.
2.4 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
2.5 Amendments and Waivers. Other than the right to the payment of
the Issue Price and all accrued but unpaid interest thereon, which may only be
amended or waived with the written consent of the Holder, any other term of this
Note may be amended and the observance of any other term of this Note may be
waived (either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least fifty-one percent (51%) of the aggregate principal amount of the Notes
then outstanding and in accordance with the Agreement. Any amendment or waiver
effected in accordance with this Section 2.5 shall be binding upon the Holder of
this Note, each future holder of this Note, and the Company.
2.6 Severability. If one or more provisions of this Note are held
to be unenforceable under applicable law, such provision shall be excluded from
this Note and the balance of the Note shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.
2.7 Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of California, without giving
effect to its conflicts of laws principles.
Date: December 10, 1999 DISCOVERY PARTNERS INTERNATIONAL, INC., a
California Corporation
By:
-----------------------------------------
Jack Fitzpatrick, Chief Financial Officer
[SIGNATURE PAGE TO PROMISSORY NOTE]
<PAGE> 12
Exhibit C
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH ACT. SEE ALSO SECTIONS 3, 6 AND 8.1
HEREOF.
No. 99- Void after
WARRANT TO PURCHASE SHARES
OF CAPITAL STOCK
of
DISCOVERY PARTNERS INTERNATIONAL, INC.
THIS CERTIFIES THAT, for value received __________________________
together with its successors and assigns (the "Holder") is entitled to subscribe
for and purchase, on the terms hereof, a calculated number of shares of capital
stock of Discovery Partners International, Inc., a California corporation (the
"Company"), subject to adjustment as provided herein.
This Warrant is subject to the following terms and conditions:
1. Promissory Note and Warrant Purchase Agreement. This Warrant is
one of a series of Warrants issued pursuant to that certain Promissory Note and
Warrant Purchase Agreement dated December 10, 1999 (the "Purchase Agreement") by
and among the Company, the Holder and the other holders of Warrants and
promissory notes issued in connection with the Purchase Agreement. Pursuant to
the Purchase Agreement, the Company also issued the Holder that certain
Promissory Note dated December 10, 1999 (the "Note").
2. Exercise of Warrant. The terms and conditions upon which this
Warrant may be exercised, and the capital stock covered hereby (the "Warrant
Stock") may be purchased, are as follows:
2.1 Term. Subject to the terms hereof, this Warrant may be
exercised, in whole or in part, at any time; provided, however, that in no event
may this Warrant be exercised later than 5:00 p.m. (Pacific Time) on the
earliest of (A) the close of business on December 10,
<PAGE> 13
2005, (B) (i) the closing of the acquisition of the Company by another entity by
means of a transaction or series of related transactions or (ii) the closing of
the sale of all or substantially all of the assets of the Company, unless the
Company's shareholders of record prior to such acquisition or sale shall hold at
least fifty percent (50%) of the voting power of the acquiring or surviving
entity immediately after such acquisition or sale, or (C) the initial
underwritten public offering of the Company's common stock (the "Common Stock")
(the "Exercise Period"). At least ten (10) days prior to the occurrence of an
event specified in (B) or (C) of this Section 2.1, the Company shall send to the
Holder notice of such event and that the Holder's rights under this Warrant
shall terminate upon the occurrence of such event; provided, that if the Company
sends such notice less than ten (10) days prior to the occurrence of such event,
the Holder's right to exercise this Warrant shall be extended for a period of
ten (10) days after the date of the notice, after which time the Holder's rights
under this Warrant shall terminate.
2.2 Number of Shares. This Warrant may be exercised for the number
of shares of the next series of preferred stock of the Company to be created and
issued (the "Preferred Stock") equal to the following:
(A/B) x .05 x C
--------------
D
Where: A = the total number of elapsed days from December 10,
1999 to the date (the "Note Termination Date") the
Note is paid or prepaid in full pursuant to the
terms thereof (such number in no case to exceed
110) [For purposes of this Section 2.2, if the
Note Termination Date has not occurred by the time
this Warrant is exercised, the date of exercise
shall be deemed the Note Termination Date]
B = 365/12
C = the original principal amount of the Note
*D = $5.00
* The parties hereto acknowledge that this in no way is an attempt
to identify the fair market value of shares of the Preferred Stock,
but is rather an arbitrary assignment of value for the purposes of
this Warrant only.
However, it is understood that the Company has no obligation ever to create and
issue a next series of preferred stock; and if the Company does not do so, then
this Warrant shall never be exercisable.
2.3 Purchase Price. The per share purchase price for the shares of
the Preferred Stock to be issued upon exercise of this Warrant shall be, subject
to adjustment as provided herein, $5.00. The parties hereto acknowledge that
this in no way is an attempt to identify the fair market value of shares of the
Preferred Stock, but is rather an arbitrary assignment of value for the purposes
of this Warrant only.
<PAGE> 14
2.4 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of a subscription attached
hereto, to the Company at its principal offices and (b) the delivery of the
purchase price by check or bank draft payable to the Company's order or by wire
transfer to the Company's account for the number of shares for which the
purchase rights hereunder are being exercised or any other form of consideration
approved by the Company's Board of Directors. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided herein or at such later date as may be specified in the executed form
of subscription, and at such time the person or persons in whose name or names
any certificate or certificates for shares of the Preferred Stock shall be
issuable upon such exercise as provided herein shall be deemed to have become
the holder or holders of record thereof.
2.5 Net Issuance.
2.5.1 Right to Convert. In addition to and without limiting
the rights of the Holder under the terms of this Warrant, the Holder shall have
the right to convert this Warrant or any portion thereof (the "Conversion
Right") into the Preferred Stock as provided in this Section 2.5 at any time or
from time to time during the Exercise Period after the initial creation and
issuance of the Preferred Stock.
Upon exercise of the Conversion Right with respect to
a particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Preferred Stock computed using the following
formula:
S = T (U - V)
---------
U
Where S = the number of shares of the Preferred Stock to be
delivered to the Holder
T = the number of Converted Warrant Shares
U = the per share fair market value of the Preferred
Stock (after adjusting back out for any of the
adjustments set forth in Section 4 hereof) on the
Conversion Date (as defined below)
*V = $5.00.
* The parties hereto acknowledge that this in no way is an attempt
to identify the fair market value of shares of the Preferred Stock,
but is rather an arbitrary assignment of value for the purposes of
this Warrant only.
<PAGE> 15
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
2.5.2 Method of Exercise. The Conversion Right may be
exercised by the Holder by the surrender of the Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right and indicating the total number
of shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.5.3 Determination of Fair Market Value. For purposes of
this Section 2.5, fair market value of a share of the Preferred Stock on the
Conversion Date shall mean the fair market value as determined by the Board of
Directors of the Company.
3. Limit on Rights of the Holder upon Exercise. The Holder
acknowledges and agrees that upon the exercise of this Warrant in full or in
part, the following provisions shall apply to the rights of the Holder as a
holder of the Preferred Stock and of any Common Stock into which it is
convertible or converted.
3.1 Market Stand-Off Agreement. During the period of duration (not
to exceed 180 days) specified by the Company and an underwriter of Common Stock
or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, as amended
(the "Act"), the Holder shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to transferees or donees who agree
to be similarly bound) any securities of the Company held by it at any time
during such period except Common Stock included in such registration; provided,
however, that this Section 3.1 shall be applicable only to the first such
registration statement of the Company pursuant to which Common Stock (or other
securities) of the Company are 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 securities of the
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
4. Adjustments to Exercise Price. The number of shares of the
Preferred Stock (or any shares of stock or other securities which may be)
issuable upon the exercise of this
<PAGE> 16
Warrant and the exercise price hereunder shall be subject to adjustment from
time to time upon the happening of certain events, as follows:
4.1 Dividends, Distributions, Stock Splits or Combinations. If the
Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of shareholders entitled to
receive, a dividend or other distribution payable in additional shares of the
Preferred Stock, then and in each such event the exercise price hereunder then
in effect shall be decreased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date, by multiplying the exercise price hereunder then in effect by a
fraction: (a) the numerator of which shall be the total number of shares of the
Preferred Stock (assuming the conversion of all outstanding securities of the
Company that are convertible into the Preferred Stock and the exercise of all
options and warrants to purchase the Preferred Stock or securities that are
convertible into the Preferred Stock) issued and outstanding immediately prior
to the time of issuance or the close of business on such record date; and (b)
the denominator of which shall be the total number of shares of the Preferred
Stock (assuming the conversion of all outstanding securities of the Company that
are convertible into the Preferred Stock and the exercise of all options and
warrants to purchase the Preferred Stock or securities that are convertible into
the Preferred Stock) issued and outstanding immediately after the time of
issuance or the close of business on such record date. If the Company shall at
any time subdivide the outstanding shares of the Preferred Stock, or if the
Company shall at any time combine the outstanding shares of the Preferred Stock
then the exercise price hereunder immediately shall be decreased proportionally
(in the case of a subdivision) or increased proportionally (in the case of a
combination). Any such adjustment shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.2 Reclassification or Reorganization. If the Preferred Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 4.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 4.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of the Preferred Stock (or any shares
of stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
4.3 Merger, Consolidation or Sale of Assets. If at any time or from
time to time there shall be a capital reorganization of the Preferred Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's assets and properties to any other person or entity, then
as a part of such reorganization, merger, consolidation or sale, provision shall
be made so that the Holder shall thereafter be entitled to receive upon the
exercise of this Warrant, the number of
<PAGE> 17
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such reorganization, merger, consolidation
or sale, to which a holder of the number of shares of the Preferred Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant would have received if this Warrant had been exercised
immediately prior to such reorganization, merger, consolidation or sale.
4.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of the Preferred Stock (or any
shares of stock or other securities which may be) issuable upon the exercise of
this Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which that adjustment or readjustment is based.
In the event of any taking by the Company of a record of the holders of the
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, the Company shall notify
the Holder in writing of such record date at least ten (10) days prior to the
date specified therein.
4.5 No Impairment. The Company shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall at all times reserve and keep
available a number of its authorized shares of the Preferred Stock, free from
all preemptive rights therein, which shall be sufficient to permit the exercise
of this Warrant and (b) shall take all such action as may be necessary or
appropriate in order that all shares of the Preferred Stock as may be issued
pursuant to the exercise of this Warrant shall, upon issuance, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
5. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
6. Investment Intent. Unless a current registration statement under
the Act shall be in effect with respect to the securities to be issued upon
exercise of this Warrant, the Holder, by accepting this Warrant, covenants and
agrees that, at the time of exercise hereof, the Holder shall deliver to the
Company a written statement that the securities acquired by the Holder upon
exercise hereof are for the own account of the Holder for investment and are not
acquired with a view to, or for sale in connection with, any distribution
thereof (or any portion thereof) and with no present intention (at any such
time) of offering or distributing such securities (or any portion thereof).
7. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase the Preferred
<PAGE> 18
Stock, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder as a shareholder of the Company.
8. Miscellaneous.
8.1 Transfer of Warrant. This Warrant shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
8.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
8.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing and in accordance with Section 6.3 of the Purchase
Agreement (for purposes of which, the term "Investor" shall mean Holder
hereunder), except as otherwise expressly provided in this Warrant.
8.4 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
8.5 Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of Warrants representing together
the right to purchase at least fifty-one percent (51%) of all of the Preferred
Stock of the Company subject to purchase pursuant to all of the Warrants and in
accordance with the Purchase Agreement. Any amendment or waiver effected in
accordance with this Section 8.5 shall be binding upon the Holder of this
Warrant (and of any securities for which this Warrant is exercisable or into
which this Warrant is convertible), each future holder of all such securities,
and the Company.
8.6 Severability. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8.7 Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
giving effect to its conflicts of laws principles.
Date: December 10, 1999 DISCOVERY PARTNERS INTERNATIONAL, INC., a
California Corporation
By:
-----------------------------------------
Jack Fitzpatrick, Chief Financial Officer
<PAGE> 19
SCHEDULE 1
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: DISCOVERY PARTNERS INTERNATIONAL, INC.
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder,________ * shares of the Preferred Stock of
Discovery Partners International, Inc., and herewith makes payment of $_____
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to_____________ , whose address is _________________ .
-----------------------------------------
(Signature must conform in all respects to
name of the Holder as specified on the
face of the Warrant)
-----------------------------------------
(Print Name)
-----------------------------------------
(Address)
Dated:
----------------
- ---------------
* Insert here the number of shares as to which the Warrant is being exercised.
<PAGE> 1
EXHIBIT 10.27
$ _________ San Diego, California
Note No. __
DISCOVERY PARTNERS INTERNATIONAL, INC.
PROMISSORY NOTE
Discovery Partners International, Inc., a California corporation
(the "Company"), for value received, hereby promises to pay to (the "Holder"),
the principal amount of ($ ) (the "Issue Price"), together with interest on the
unpaid amount thereof in accordance with the terms hereof, from the date hereof
until paid in accordance with the terms hereof.
1. Promissory Note ("Note").
1.1 Interest Rate. The rate of interest hereunder ("Interest Rate")
shall equal eight percent (8%) per annum, and shall be computed on the basis of
a 365 day year for the actual number of days elapsed.
1.2 Payment. The Issue Price plus all accrued but previously unpaid
interest thereon shall become due and payable on the earlier of (a) the closing
of a subsequent equity financing in which shares of the Company's Preferred
Stock are issued or (b) February 10, 2000. Payment and any prepayment under
Section 1.3 below shall be made at the offices or residence of the Holder, or at
such other place as the Holder shall have designated to the Company in writing,
in lawful money of the United States of America.
1.3 Prepayment. This Note may be prepaid, in whole or in part, at
any time without premium or penalty.
1.4 Note and Warrant Purchase Agreement. This Note is one of a
series of Promissory Notes (collectively, the "Notes") issued by the Company in
connection with that certain Promissory Note and Warrant Purchase Agreement
dated as of the date hereof (the "Agreement") among the Company, Holder and the
holders of the other Notes, and is subject to, and Holder and the Company shall
be bound by, all the terms, conditions and provisions of the Agreement.
2. Miscellaneous.
2.1 Transfer of Note. This Note shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by the Holder without the express written consent of the Company, and
any such attempted disposition of this Note or any portion hereof shall be of no
force or effect.
<PAGE> 2
2.2 Titles and Subtitles. The titles and subtitles used in this Note
are for convenience only and are not to be considered in construing or
interpreting this Note.
2.3 Notices. Any notice required or permitted under this Note shall
be given in writing and in accordance with Section 6.3 of the Agreement (for
purposes of which the term "Investor" shall mean the Holder hereunder), except
as otherwise expressly provided in this Note.
2.4 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
2.5 Amendments and Waivers. Other than the right to the payment of
the Issue Price and all accrued but unpaid interest thereon, which may only be
amended or waived with the written consent of the Holder, any other term of this
Note may be amended and the observance of any other term of this Note may be
waived (either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least fifty-one percent (51%) of the aggregate principal amount of the Notes
then outstanding and in accordance with the Agreement. Any amendment or waiver
effected in accordance with this Section 2.5 shall be binding upon the Holder of
this Note, each future holder of this Note, and the Company.
2.6 Severability. If one or more provisions of this Note are held to
be unenforceable under applicable law, such provision shall be excluded from
this Note and the balance of the Note shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.
2.7 Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of California, without giving
effect to its conflicts of laws principles.
Date: December 10, 1999 DISCOVERY PARTNERS INTERNATIONAL, INC., a
California Corporation
By:
-------------------------------------------
Jack Fitzpatrick, Chief Financial Officer
[SIGNATURE PAGE TO PROMISSORY NOTE]
<PAGE> 3
SCHEDULE A
<TABLE>
<CAPTION>
NOTE NO. NOTE HOLDER AMOUNT
- -------- --------------- ------
<S> <C> <C>
99-1 Enterprise Partners III, L.P. $1,852,793
99-2 Enterprise Partners III Associates, L.P. $147,207
99-3 Mayfield VIII $1,900,000
99-4 Mayfield Associates Fund II $100,000
</TABLE>
<PAGE> 1
EXHIBIT 10.28
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH ACT. SEE ALSO SECTIONS 3, 6 AND 8.1
HEREOF.
No. __- Void after
December 10, 2005
WARRANT TO PURCHASE SHARES
OF CAPITAL STOCK
of
DISCOVERY PARTNERS INTERNATIONAL, INC.
THIS CERTIFIES THAT, for value received together with its successors
and assigns (the "Holder") is entitled to subscribe for and purchase, on the
terms hereof, a calculated number of shares of capital stock of Discovery
Partners International, Inc., a California corporation (the "Company"), subject
to adjustment as provided herein.
This Warrant is subject to the following terms and conditions:
1. Promissory Note and Warrant Purchase Agreement. This Warrant is
one of a series of Warrants issued pursuant to that certain Promissory Note and
Warrant Purchase Agreement dated December 10, 1999 (the "Purchase Agreement") by
and among the Company, the Holder and the other holders of Warrants and
promissory notes issued in connection with the Purchase Agreement. Pursuant to
the Purchase Agreement, the Company also issued the Holder that certain
Promissory Note dated December 10, 1999 (the "Note").
2. Exercise of Warrant. The terms and conditions upon which this
Warrant may be exercised, and the capital stock covered hereby (the "Warrant
Stock") may be purchased, are as follows:
2.1 Term. Subject to the terms hereof, this Warrant may be
exercised, in whole or in part, at any time; provided, however, that in no event
may this Warrant be exercised later than 5:00 p.m. (Pacific Time) on the
earliest of (A) the close of business on December 10,
<PAGE> 2
2005, (B) (i) the closing of the acquisition of the Company by another entity by
means of a transaction or series of related transactions or (ii) the closing of
the sale of all or substantially all of the assets of the Company, unless the
Company's shareholders of record prior to such acquisition or sale shall hold at
least fifty percent (50%) of the voting power of the acquiring or surviving
entity immediately after such acquisition or sale, or (C) the initial
underwritten public offering of the Company's common stock (the "Common Stock")
(the "Exercise Period"). At least ten (10) days prior to the occurrence of an
event specified in (B) or (C) of this Section 2.1, the Company shall send to the
Holder notice of such event and that the Holder's rights under this Warrant
shall terminate upon the occurrence of such event; provided, that if the Company
sends such notice less than ten (10) days prior to the occurrence of such event,
the Holder's right to exercise this Warrant shall be extended for a period of
ten (10) days after the date of the notice, after which time the Holder's rights
under this Warrant shall terminate.
2.2 Number of Shares. This Warrant may be exercised for the number
of shares of the next series of preferred stock of the Company to be created and
issued (the "Preferred Stock") equal to the following:
(A/B) x .05 x C
-------------------
D
Where: A = the total number of elapsed days from December 10,
1999 to the date (the "Note Termination Date") the
Note is paid or prepaid in full pursuant to the terms
thereof (such number in no case to exceed 110) [For
purposes of this Section 2.2, if the Note Termination
Date has not occurred by the time this Warrant is
exercised, the date of exercise shall be deemed the
Note Termination Date]
B = 365/12
C = the original principal amount of the Note
*D = $5.00
* The parties hereto acknowledge that this in no way is an attempt
to identify the fair market value of shares of the Preferred Stock,
but is rather an arbitrary assignment of value for the purposes of
this Warrant only.
However, it is understood that the Company has no obligation ever to create and
issue a next series of preferred stock; and if the Company does not do so, then
this Warrant shall never be exercisable.
2.3 Purchase Price. The per share purchase price for the shares of
the Preferred Stock to be issued upon exercise of this Warrant shall be, subject
to adjustment as provided herein, $5.00. The parties hereto acknowledge that
this in no way is an attempt to identify the fair market value of shares of the
Preferred Stock, but is rather an arbitrary assignment of value for the purposes
of this Warrant only.
<PAGE> 3
2.4 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of a subscription attached
hereto, to the Company at its principal offices and (b) the delivery of the
purchase price by check or bank draft payable to the Company's order or by wire
transfer to the Company's account for the number of shares for which the
purchase rights hereunder are being exercised or any other form of consideration
approved by the Company's Board of Directors. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided herein or at such later date as may be specified in the executed form
of subscription, and at such time the person or persons in whose name or names
any certificate or certificates for shares of the Preferred Stock shall be
issuable upon such exercise as provided herein shall be deemed to have become
the holder or holders of record thereof.
2.5 Net Issuance.
2.5.1 Right to Convert. In addition to and without limiting
the rights of the Holder under the terms of this Warrant, the Holder shall have
the right to convert this Warrant or any portion thereof (the "Conversion
Right") into the Preferred Stock as provided in this Section 2.5 at any time or
from time to time during the Exercise Period after the initial creation and
issuance of the Preferred Stock.
Upon exercise of the Conversion Right with respect to
a particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Preferred Stock computed using the following
formula:
S = T (U - V)
---------
U
Where S = the number of shares of the
Preferred Stock to be delivered to
the Holder
T = the number of Converted Warrant Shares
U = the per share fair market value of the Preferred
Stock (after adjusting back out for any of the
adjustments set forth in Section 4 hereof) on the
Conversion Date (as defined below)
*V = $5.00.
* The parties hereto acknowledge that this in no way is an attempt
to identify the fair market value of shares of the Preferred Stock,
but is rather an arbitrary assignment of value for the purposes of
this Warrant only.
<PAGE> 4
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
2.5.2 Method of Exercise. The Conversion Right may be
exercised by the Holder by the surrender of the Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right and indicating the total number
of shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.5.3 Determination of Fair Market Value. For purposes of this
Section 2.5, fair market value of a share of the Preferred Stock on the
Conversion Date shall mean the fair market value as determined by the Board of
Directors of the Company.
3. Limit on Rights of the Holder upon Exercise. The Holder
acknowledges and agrees that upon the exercise of this Warrant in full or in
part, the following provisions shall apply to the rights of the Holder as a
holder of the Preferred Stock and of any Common Stock into which it is
convertible or converted.
3.1 Market Stand-Off Agreement. During the period of duration (not
to exceed 180 days) specified by the Company and an underwriter of Common Stock
or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, as amended
(the "Act"), the Holder shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to transferees or donees who agree
to be similarly bound) any securities of the Company held by it at any time
during such period except Common Stock included in such registration; provided,
however, that this Section 3.1 shall be applicable only to the first such
registration statement of the Company pursuant to which Common Stock (or other
securities) of the Company are 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 securities of the
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
4. Adjustments to Exercise Price. The number of shares of the
Preferred Stock (or any shares of stock or other securities which may be)
issuable upon the exercise of this
<PAGE> 5
Warrant and the exercise price hereunder shall be subject to adjustment from
time to time upon the happening of certain events, as follows:
4.1 Dividends, Distributions, Stock Splits or Combinations. If the
Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of shareholders entitled to
receive, a dividend or other distribution payable in additional shares of the
Preferred Stock, then and in each such event the exercise price hereunder then
in effect shall be decreased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date, by multiplying the exercise price hereunder then in effect by a
fraction: (a) the numerator of which shall be the total number of shares of the
Preferred Stock (assuming the conversion of all outstanding securities of the
Company that are convertible into the Preferred Stock and the exercise of all
options and warrants to purchase the Preferred Stock or securities that are
convertible into the Preferred Stock) issued and outstanding immediately prior
to the time of issuance or the close of business on such record date; and (b)
the denominator of which shall be the total number of shares of the Preferred
Stock (assuming the conversion of all outstanding securities of the Company that
are convertible into the Preferred Stock and the exercise of all options and
warrants to purchase the Preferred Stock or securities that are convertible into
the Preferred Stock) issued and outstanding immediately after the time of
issuance or the close of business on such record date. If the Company shall at
any time subdivide the outstanding shares of the Preferred Stock, or if the
Company shall at any time combine the outstanding shares of the Preferred Stock
then the exercise price hereunder immediately shall be decreased proportionally
(in the case of a subdivision) or increased proportionally (in the case of a
combination). Any such adjustment shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.2 Reclassification or Reorganization. If the Preferred Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 4.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 4.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of the Preferred Stock (or any shares
of stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
4.3 Merger, Consolidation or Sale of Assets. If at any time or from
time to time there shall be a capital reorganization of the Preferred Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's assets and properties to any other person or entity, then
as a part of such reorganization, merger, consolidation or sale, provision shall
be made so that the Holder shall thereafter be entitled to receive upon the
exercise of this Warrant, the number of
<PAGE> 6
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such reorganization, merger, consolidation
or sale, to which a holder of the number of shares of the Preferred Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant would have received if this Warrant had been exercised
immediately prior to such reorganization, merger, consolidation or sale.
4.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of the Preferred Stock (or any
shares of stock or other securities which may be) issuable upon the exercise of
this Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which that adjustment or readjustment is based.
In the event of any taking by the Company of a record of the holders of the
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, the Company shall notify
the Holder in writing of such record date at least ten (10) days prior to the
date specified therein.
4.5 No Impairment. The Company shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall at all times reserve and keep
available a number of its authorized shares of the Preferred Stock, free from
all preemptive rights therein, which shall be sufficient to permit the exercise
of this Warrant and (b) shall take all such action as may be necessary or
appropriate in order that all shares of the Preferred Stock as may be issued
pursuant to the exercise of this Warrant shall, upon issuance, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
5. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
6. Investment Intent. Unless a current registration statement under
the Act shall be in effect with respect to the securities to be issued upon
exercise of this Warrant, the Holder, by accepting this Warrant, covenants and
agrees that, at the time of exercise hereof, the Holder shall deliver to the
Company a written statement that the securities acquired by the Holder upon
exercise hereof are for the own account of the Holder for investment and are not
acquired with a view to, or for sale in connection with, any distribution
thereof (or any portion thereof) and with no present intention (at any such
time) of offering or distributing such securities (or any portion thereof).
7. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase the Preferred
<PAGE> 7
Stock, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder as a shareholder of the Company.
8. Miscellaneous.
8.1 Transfer of Warrant. This Warrant shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
8.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
8.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing and in accordance with Section 6.3 of the Purchase
Agreement (for purposes of which, the term "Investor" shall mean Holder
hereunder), except as otherwise expressly provided in this Warrant.
8.4 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
8.5 Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of Warrants representing together
the right to purchase at least fifty-one percent (51%) of all of the Preferred
Stock of the Company subject to purchase pursuant to all of the Warrants and in
accordance with the Purchase Agreement. Any amendment or waiver effected in
accordance with this Section 8.5 shall be binding upon the Holder of this
Warrant (and of any securities for which this Warrant is exercisable or into
which this Warrant is convertible), each future holder of all such securities,
and the Company.
8.6 Severability. If one or more provisions of this Warrant are held
to be unenforceable under applicable law, such provision shall be excluded from
this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8.7 Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
giving effect to its conflicts of laws principles.
Date: December 10, 1999 DISCOVERY PARTNERS INTERNATIONAL, INC., a
California Corporation
By:
------------------------------------------
Jack Fitzpatrick, Chief Financial Officer
<PAGE> 8
SCHEDULE 1
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: DISCOVERY PARTNERS INTERNATIONAL, INC.
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ____________* shares of the Preferred Stock of
Discovery Partners International, Inc., and herewith makes payment of
$____________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to _____________________________________,
whose address is ___________________________.
______________________________________
(Signature must conform in all
respects to name of the Holder as
specified on the face of the
Warrant)
______________________________________
(Print Name)
______________________________________
(Address)
Dated: _______________
- ----------
* Insert here the number of shares as to which the Warrant is being exercised.
<PAGE> 9
SCHEDULE A
<TABLE>
<CAPTION>
Warrant No. Warrant Holder
- ----------- --------------
<S> <C>
99-1 Enterprise Partners III, L.P.
99-2 Enterprise Partners III Associates, L.P.
99-3 Mayfield VIII
99-4 Mayfield Associates Fund II
</TABLE>
<PAGE> 1
EXHIBIT 10.29
PROMISSORY NOTE AND
WARRANT PURCHASE AGREEMENT
THIS PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is made as of March 9, 2000, among Discovery Partners
International, Inc., a California corporation (the "Company"), and each of the
investors listed on Exhibit A attached hereto (each individually, an "Investor"
and collectively, the "Investors").
RECITALS
WHEREAS, each Investor desires to purchase from the Company, and
the Company desires to sell and issue to each Investor, a Promissory Note in
substantially the same form as Exhibit B attached hereto (each, a "Note" and
collectively, the "Notes") in the principal amount set forth opposite each
Investor's name on Exhibit A attached hereto under the headings "Principal
Amount of Notes"; and
WHEREAS, each Investor desires to purchase from the Company, and
the Company desires to sell and issue to each Investor, Warrants in
substantially the same form as Exhibit C attached hereto and on the terms and
conditions set forth herein (each, a "Warrant" and collectively, the
"Warrants"), such Warrants to purchase that number of shares of the Company's
capital stock ("Exercise Stock") as determined pursuant to the terms and
conditions of this Agreement and the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereby agree as
follows:
1. Purchase and Sale of Notes and Warrants.
1.1 Purchase and Sale of Notes and Warrants. Subject to the terms
and conditions of this Agreement, each Investor agrees, severally and not
jointly, to purchase at the Closing and the Company agrees to sell and issue to
each Investor, severally and not jointly, at the Closing (a) a Note in
substantially the same form as attached hereto as Exhibit B, in the principal
amount set forth opposite that Investor's name on Exhibit A attached hereto
under the heading "Principal Amount of Notes" at a price equal to 100% of the
principal amount thereof, up to an aggregate amount of $2,000,000.00 and (b)
Warrants to purchase such variable number of shares of Exercise Stock as set
forth by the terms of this Agreement and of each Warrant in substantially the
same form as attached hereto as Exhibit C.
1.2 Closing.
(a) The purchase and sale of the Notes and the Warrants
shall occur at the offices of Brobeck, Phleger & Harrison LLP, 550 West C
Street, Suite 1300, San Diego, California, at 10:00 a.m. on March 9, 2000, or at
such other time and place as the Company and
<PAGE> 2
Investors acquiring more than half the aggregate principal amount of the Notes
sold pursuant hereto shall mutually agree in writing (the "Closing").
(b) At the Closing, the Company shall deliver to each
Investor the Note and Warrant that such Investor is purchasing against payment
by check or wire transfer of the Principal Amount of Notes set forth, across
from each Investor's name on attached Exhibit A.
1.3 Allocation of Purchase Price to Warrants. The Company hereby
allocates to the Warrants a purchase price of $0.01 for each share of Exercise
Stock that each Warrant is exercisable into and such purchase price shall be
retained from the interest that accrued on such Investor's Note by the Company
at the time such Investor's Note is paid in full.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to and for the benefit of each Investor, with knowledge
that each Investor is relying thereon in entering into this Agreement and
purchasing the Notes and the Warrants from the Company, that the following are
true and correct:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on the operation of its business or properties.
2.2 Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Notes and the Warrants has been
taken or will be taken prior to the Closing, and this Agreement, the Notes and
the Warrants constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
2.3 Disclosure. The Company has fully provided each Investor with
all the information which such Investor has requested for deciding whether to
purchase the Notes and the Warrants and all information which the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither this Agreement nor any other written statements or certificates made or
delivered in connection herewith or therewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
in this Agreement or therein not misleading.
3. Representations and Warranties of the Investors. Each Investor hereby
separately and not jointly represents and warrants to and for the benefit of the
Company, with knowledge
2
<PAGE> 3
that the Company is relying thereon in entering into this Agreement and issuing
the Notes and Warrants to such Investor, as follows:
3.1 Purchase Entirely for Own Account. By each Investor's execution
of this Agreement, such Investor hereby confirms that the Notes and Warrants to
be received by such Investor, and the capital stock issuable upon exercise of
the Warrants (collectively, and also including any further underlying
securities, the "Securities") shall be acquired for investment for such
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 such investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor
further-represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities. Each Investor represents that it has full power and authority to
enter into this Agreement.
3.2 Investment Experience. Each 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 Securities.
3.3 Accredited Investor. Each Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as now in effect.
3.4 Restricted Securities. Each Investor understands that the
Securities it is and shall be 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 "Act"),
only in certain limited circumstances. In this connection, each Investor
represents that it is familiar with Rule 144 promulgated under the Act, as now
in effect, and understands the resale limitations imposed thereby and by the
Act.
3.5 Legends. Each Investor understands that the certificates
evidencing the Securities may bear one or all of the following legends:
(a) The securities evidenced by this certificate have not
been registered under the Securities Act of 1933, as amended (the "Act") or the
securities laws of any state of the United States. The securities evidenced by
this certificate may not be offered, sold or transferred for value directly or
indirectly, in the absence of such registration under the Act and qualification
under applicable state laws, or pursuant to an exemption from registration under
the Act and qualification under applicable state laws, the availability of which
is to be established to the reasonable satisfaction of the Company.
3
<PAGE> 4
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
(c) A legend giving notice of Section 6.
4. Restrictions on Disposition. Without in any way limiting the
representations set forth in Section 3 above, each Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 4, and in addition thereto, one of the following conditions is
satisfied:
4.1 Securities Registered. There is then in effect a registration
statement under the Act covering such proposed disposition and such disposition
is made in accordance with such registration statement.
4.2 Registration Not Required. Such Investor shall have (i)
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, furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such securities under the Act.
4.3 Other Permitted Transfers. The disposition is by an Investor
which is a partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his spouse or to the siblings, lineal descendants including
adopted children or ancestors of such partner or his spouse, if, prior to such
transfer, the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he were an original Investor hereunder. Notwithstanding
any of the foregoing, transferability of the Notes are further restricted by
their terms.
5. California Commissioner of Corporations.
5.1 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 FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION 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.
4
<PAGE> 5
6. Market Stand-Off Agreement. During the period of duration (not to
exceed 180 days) specified by the Company and an underwriter of Common Stock or
other securities of the Company, following the effective date of a registration
statement of the Company filed under the Act, each Investor shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to transferees or donees who agree to be similarly bound) any securities of
the Company held by it at any time during such period except Common Stock
included in such registration; provided, however, that this Section 6 shall be
applicable only to the first such registration statement of the Company pursuant
to which Common Stock (or other securities) of the Company are 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 securities of each Investor (and the shares or securities of
every other person subject to the foregoing restriction) until the end of such
period.
7. General Provisions.
7.1 Construction. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of California,
without giving effect to its conflicts of laws principles.
7.2 Entire Agreement. This Agreement, together with the agreements
and documents referred to herein, constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
and contemporaneous negotiations, agreements and understandings.
7.3 Notices. All payments, notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given at the earlier of (i) the time of actual delivery or (ii) on the
third business day following the date deposited with the United States Postal
Service, postage prepaid, certified with return receipt requested, to the
parties at the following addresses or at such other address as shall be given in
writing by a party to the other parties:
Investors: At the address set forth below their
names on Exhibit A attached hereto.
The Company: 9640 Towne Centre Drive
San Diego, CA 92121
Attn: President
7.4 Successors and Assigns. This Agreement, and the rights and
obligations of each of the parties hereunder, may not be assigned by any
Investor without the prior written consent of the Company. Subject to the
foregoing sentence, this Agreement shall inure to the benefit of, and shall be
binding upon, the parties and their successors and assigns.
5
<PAGE> 6
7.5 Severability. If any term, covenant or condition of this Agreement
is held to be invalid, void or otherwise unenforceable by any court of competent
jurisdiction, the remainder of this Agreement shall not be affected thereby and
each term, covenant and condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
7.6 Modification. 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), with the written
consent of the Company and the holders of at least fifty-one percent (51%) of
the aggregate principal amount of the Notes then outstanding. Any amendment or
waiver effected in accordance with this Section 7.6 shall be binding upon all
parties to this Agreement, including, without limitation, any Investors who may
not have executed such amendment or waiver, and each future holder of any
Exercise Stock that the holder of any Warrant is entitled to receive upon the
exercise of such Warrant.
7.7 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to an award of its reasonable attorneys' fees, costs and disbursements
in addition to any other relief to which such party may be entitled.
7.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
COMPANY: DISCOVERY PARTNERS INTERNATIONAL,
INC., a California corporation
By: /s/ Jack Fitzpatrick
-----------------------------------------
Jack Fitzpatrick, Chief Financial Officer
Address: 9640 Towne Centre Drive
San Diego, CA 92121
INVESTORS: CROSSPOINT VENTURE PARTNERS LS-1997
By: /s/ Donald B. Milder
---------------------------------
General Partner
Address: 18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
[SIGNATURE PAGE TO PROMISSORY
NOTE AND WARRANT PURCHASE AGREEMENT]
<PAGE> 8
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
INVESTOR NAME AND ADDRESS OF NOTES
- ------------------------- ----------------
<S> <C>
Crosspoint Venture Partners LS-1997 $2,000,000
18552 MacArthur Boulevard, Suit 300
Irvine, CA 92715
Total: $2,000 000
==========
</TABLE>
<PAGE> 1
$2,000,000 San Diego, California
Note No. 00-1 March 9, 2000
DISCOVERY PARTNERS INTERNATIONAL, INC. EXHIBIT 10.30
PROMISSORY NOTE
Discovery Partners International, Inc., a California corporation (the
"Company"), for value received, hereby promises to pay to Crosspoint Venture
Partners LS-1997 (the "Holder"), the principal amount of Two Million Dollars
($2,000,000) (the "Issue Price"), together with interest on the unpaid amount
thereof in accordance with the terms hereof, from the date hereof until paid in
accordance with the terms hereof.
1. Promissory Note ("Note").
1.1 Interest Rate. The rate of interest hereunder ("Interest Rate")
shall equal eight percent (8%) per annum, and shall be computed on the basis of
a 365 day year for the actual number of days elapsed.
1.2 Payment. The Issue Price plus all accrued but previously unpaid
interest thereon shall become due and payable on the earlier of (a) the closing
of a subsequent equity financing in which shares of the Company's Preferred
Stock are issued or (b) June 9, 2000. Payment and any prepayment under Section
1.3 below shall be made at the offices or residence of the Holder, or at such
other place as the Holder shall have designated to the Company in writing, in
lawful money of the United States of America.
1.3 Prepayment. This Note may be prepaid, in whole or in part, at any
time without premium or penalty.
1.4 Note and Warrant Purchase Agreement. This Note is one of a series
of Promissory Notes (collectively, the "Notes") issued by the Company in
connection with that certain Promissory Note and Warrant Purchase Agreement
dated as of the date hereof (the "Agreement") among the Company, Holder and the
holders of the other Notes, and is subject to, and Holder and the Company shall
be bound by, all the terms, conditions and provisions of the Agreement.
2. Miscellaneous.
2.1 Transfer of Note. This Note shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by the Holder without the express written consent of the Company, and
any such attempted disposition of this Note or any portion hereof shall be of no
force or effect.
2.2 Titles and Subtitles. The titles and subtitles used in this Note
are for convenience only and are not to be considered in construing or
interpreting this Note.
<PAGE> 2
2.3 Notices. Any notice required or permitted under this Note shall
be given m writing and in accordance with Section 6.3 of the Agreement (for
purposes of which the term "Investor" shall mean the Holder hereunder), except
as otherwise expressly provided in this Note.
2.4 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
2.5 Amendments and Waivers. Other than the right to the payment of
the Issue Price and all accrued but unpaid interest thereon, which may only be
amended or waived with the written consent of the Holder, any other term of this
Note may be amended and the observance of any other term of this Note may be
waived (either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least fifty-one percent (51%) of the aggregate principal amount of the Notes
then outstanding and in accordance with the Agreement. Any amendment or waiver
effected in accordance with this Section 2.5 shall be binding upon the Holder of
this Note, each future holder of this Note, and the Company.
2.6 Severability. If one or more provisions of this Note are held to
be unenforceable under applicable law, such provision shall be excluded from
this Note and the balance of the Note shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.
2.7 Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of California, without giving
effect to its conflicts of laws principles.
Date: March 9, 2000 DISCOVERY PARTNERS INTERNATIONAL, INC., a
California Corporation
By: /s/ Jack Fitzpatrick
-------------------------------------
Jack Fitzpatrick,
Chief Financial Officer
[SIGNATURE PAGE TO PROMISSORY NOTE]
<PAGE> 1
EXHIBIT 10.31
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH ACT. SEE ALSO SECTIONS 3, 6 AND 8.1
HEREOF.
No. 00-1 Void after
March 9, 2006
WARRANT TO PURCHASE SHARES
OF CAPITAL STOCK
of
DISCOVERY PARTNERS INTERNATIONAL, INC.
THIS CERTIFIES THAT, for value received, Crosspoint Venture Partners
LS-1997, together with its successors and assigns (the "Holder) is entitled to
subscribe for and purchase, on the terms hereof, a calculated number of shares
of capital stock of Discovery Partners International, Inc., a California
corporation (the "Company"), subject to adjustment as provided herein.
This Warrant is subject to the following terms and conditions:
1. Promissory Note and Warrant Purchase Agreement. This Warrant is one
of a series of Warrants issued pursuant to that certain Promissory Note and
Warrant Purchase Agreement dated March 9, 2000 (the "Purchase Agreement") by and
among the Company and the Holder of Warrants and promissory notes issued in
connection with the Purchase Agreement. Pursuant to the Purchase Agreement, the
Company also issued the Holder that certain Promissory Note dated March 9, 2000
(the "Note").
2. Exercise of Warrant. The terms and conditions upon which this Warrant
may be exercised, and the capital stock covered hereby (the "Warrant Stock") may
be purchased, are as follows:
2.1 Term. Subject to the terms hereof, this Warrant may be exercised, in
whole or in part, at any time; provided, however, that in no event may this
Warrant be exercised later than 5.00 p.m. (Pacific Time) on the earliest of (A)
the close of business on March 9, 2006, (B) (i) the closing, of the acquisition
of the Company by another entity by means of a transaction or series of related
transactions or (ii) the closing of the sale of all or substantially all of the
<PAGE> 2
assets of the Company, unless the Company's shareholders of record prior to such
acquisition or sale shall hold at least fifty percent (50%). of the voting power
of the acquiring or surviving entity immediately after such acquisition or sale,
or (C) the initial underwritten public offering, of the Company's common stock
(the "Common Stock") (the "Exercise Period"). At least ten (10) days prior to
the occurrence of an event specified in (B) or (C) of this Section 2. 1, the
Company shall send to the Holder notice of such event and that the Holder's
rights under this Warrant shall terminate upon the occurrence of such event;
provided, that if the Company sends such notice less than ten (10) days prior to
the occurrence of such event, the Holder's right to exercise this Warrant shall
be extended for a period of ten (10) days after the date of the notice, after
which time the Holder's rights under this Warrant shall terminate.
2.2 Number of Shares. This Warrant may be exercised for the number of
shares of the next series of preferred stock of the Company to be created and
issued (the "Preferred Stock") equal to the following:
59,178 + (A/B) x .05 x C
------------------------
D
Where: A = the total number of elapsed days from March 9, 2000 to the
date (the "Note Termination Date") the Note is paid or
prepaid in full pursuant to the terms thereof (such number in
no case to exceed 110 [For purposes of this Section 2.2, if
the Note Termination Date has not occurred by the time this
Warrant is exercised, the date of exercise shall be deemed
the Note Termination Date]
B = 365/12
C = the original principal amount of the Note
*D = $5.00
* The parties hereto acknowledge that this in no way is an
attempt to identify the fair market value of shares of the
Preferred Stock, but is rather an arbitrary assignment of
value for the purposes of this Warrant only.
However, it is understood that the Company has no obligation ever to create and
issue a next series of preferred stock; and if the Company does not do so, then
this Warrant shall never be exercisable.
2.3 Purchase Price. The per share purchase price for the shares of the
Preferred Stock to be issued upon exercise of this Warrant shall be, subject to
adjustment as provided herein, $5.00. The parties hereto acknowledge that this
in no way is an attempt to identify the fair market value of shares of the
Preferred Stock, but is rather an arbitrary assignment of value for the purposes
of this Warrant only.
2.4 Method of Exercise. The exercise of the purchase rights evidenced by
this Warrant shall be effected by (a) the surrender of the Warrant, together
with a duly executed copy of the form of a subscription attached hereto, to the
Company at its principal offices and (b) the
2
<PAGE> 3
delivery of the purchase price by check or bank draft payable to the Company's
order or by wire transfer to the Company's account for the number of shares for
which the purchase rights hereunder are being exercised or any other form of
consideration approved by the Company's Board of Directors. Each exercise of
this Warrant shall be deemed to have been effected immediately prior to the
close of business on the day on which this Warrant shall have been surrendered
to the Company as provided herein or at such later date as may be specified in
the executed form of subscription, and at such time the person or persons in
whose name or names any certificate or certificates for shares of the Preferred
Stock shall be issuable upon such exercise as provided herein shall be deemed to
have become the holder or holders of record thereof.
2.5 Net Issuance.
2.5.1 Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into the Preferred Stock as provided in this Section 2.5 at any time or from
time to time during the Exercise Period after the initial creation and issuance
of the Preferred Stock.
Upon exercise of the Conversion Right with respect to a
particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Preferred Stock computed using the following
formula:
S = T (U - V)
---------
U
Where S = the number of shares of the Preferred Stock to be
delivered to the Holder
T the number of Converted Warrant Shares
U the per share fair market value of the Preferred Stock
(after adjusting back out for any of the adjustments set
forth in Section 4 hereof) on the Conversion Date (as
defined below)
*V = $5.00.
* The parties hereto acknowledge that this in no way is an attempt to
identify the fair market value of shares of the Preferred Stock, but is
rather an arbitrary assignment of value for the purposes of this Warrant
only.
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares
3
<PAGE> 4
issued pursuant to the Conversion Right shall be treated as if they were issued
upon the exercise of the Warrant.
2.5.2 Method o f Exercise. The Conversion Right may be exercised by
the Holder by the surrender of the Warrant at the principal office of the
Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the total number of
shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.5.3 Determination of Fair Market Value. For purposes of this
Section 2.5, fair market value of a share of the Preferred Stock on the
Conversion Date shall mean the fair market value as determined by the Board of
Directors of the Company.
3. Limit on Rights of the Holder upon Exercise. The Holder acknowledges
and agrees that upon the exercise of this Warrant in fall or in part, the
following provisions shall apply to the rights of the Holder as a holder of the
Preferred Stock and of any Common Stock into which it is convertible or
converted.
3.1 Market Stand-Off Agreement. During the period of duration (not to
exceed 180 days) specified by the Company and an underwriter of Common Stock or
other securities of the Company, following the effective date of a registration
statement of the Company filed under the Securities Act, as amended (the "Act"),
the Holder shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to transferees or donees who agree
to be similarly bound) any securities of the Company held by it at any time
during such period except Common Stock included in such registration; provided,
however, that this Section 3.1 shall be applicable only to the first such
registration statement of the Company pursuant to which Common Stock (or other
securities) of the Company are 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 securities of the
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
4. Adjustments to Exercise Price. The number of shares of the Preferred
Stock (or any shares of stock or other securities which may be) issuable upon
the exercise of this Warrant and the exercise price hereunder shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
4.1 Dividends, Distributions, Stock Splits or Combinations. If the
Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of shareholders entitled to
receive, a dividend or other distribution payable in additional shares of the
Preferred Stock, then and in each such event the exercise price hereunder then
in effect shall be decreased as of the time of such issuance or, in the event
such a record
4
<PAGE> 5
date shall have been fixed, as of the close of business on such record date, by
multiplying the exercise price hereunder then in effect by a fraction: (a) the
numerator of which shall be the total number of shares of the Preferred Stock
(assuming the conversion of all outstanding securities of the Company that are
convertible into the Preferred Stock and the exercise of all options and
warrants to purchase the Preferred Stock or securities that are convertible into
the Preferred Stock) issued and outstanding immediately prior to the time of
issuance or the close of business on such record date; and (b) the denominator
of which shall be the total number of shares of the Preferred Stock (assuming
the conversion of all outstanding securities of the Company that are convertible
into the Preferred Stock and the exercise of all options and warrants to
purchase the Preferred Stock or securities that are convertible into the
Preferred Stock) issued and outstanding immediately after the time of issuance
or the close of business on such record date. If the Company shall at any time
subdivide the outstanding shares of the Preferred Stock, or if the Company shall
at any time combine the outstanding shares of the Preferred Stock then the
exercise price hereunder immediately shall be decreased proportionally (in the
case of a subdivision) or increased proportionally (in the case of a
combination). Any such adjustment shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.2 Reclassification or Reorganization. If the Preferred Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 4.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 4.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of the Preferred Stock (or any shares
of stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
4.3 Merger, Consolidation or Sale of Assets. If at any time or from
time to time there shall be a capital reorganization of the Preferred Stock
(other than a subdivision combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's assets and properties to any other person or entity, then
as a part of such reorganization, merger, consolidation or sale, provision shall
be made so that the Holder shall thereafter be entitled to receive upon the
exercise of this Warrant, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the number
of shares of the Preferred Stock (or any shares of stock or other securities
which may be) issuable upon the exercise of this Warrant would have received if
this Warrant had been exercised immediately prior to such reorganization,
merger, consolidation or sale.
4.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of the Preferred Stock (or any
shares of stock or other securities which may be) issuable upon the exercise of
this Warrant. Such notice shall state the adjustment or
5
<PAGE> 6
readjustment and show in reasonable detail the facts on which that adjustment or
readjustment is based. In the event of any taking by the Company of a record of
the holders of the Preferred Stock for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, the
Company shall notify the Holder in writing of such record date at least ten (10)
days prior to the date specified therein.
4.5 No Impairment. The Company shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing the Company (a) shall at all times reserve and keep
available a number of its authorized shares of the Preferred Stock, free from
all preemptive rights therein, which shall be sufficient to permit the exercise
of this Warrant and (b) shall take all such action as may be necessary or
appropriate in order that all shares of the Preferred Stock as may be issued
pursuant to the exercise of this Warrant shall, upon issuance, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
5. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
6. Investment Intent. Unless a current registration statement under the
Act shall be in effect with respect to the securities to be issued upon exercise
of this Warrant, the Holder, by accepting this Warrant, covenants and agrees
that, at the time of exercise hereof, the Holder shall deliver to the Company a
written statement that the securities acquired by the Holder upon exercise
hereof are for the own account of the Holder for investment and are not acquired
with a view to, or for sale in connection with, any distribution thereof (or any
portion thereof) and with no present intention (at any such time) of offering,
or distributing such securities (or any portion thereof).
7. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase the Preferred Stock, and no enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder as a shareholder of the Company.
8. Miscellaneous.
8.1 Transfer of Warrant. This Warrant shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
8.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
6
<PAGE> 7
8.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing and in accordance with Section 6.3 of the Purchase
Agreement (for purposes of which, the term "Investor" shall mean Holder
hereunder), except as otherwise expressly provided in this Warrant.
8.4 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
8.5 Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of Warrants representing together
the right to purchase at least fifty-one percent (51%) of all of the Preferred
Stock of the Company subject to purchase pursuant to all of the Warrants and in
accordance with the Purchase Agreement. Any amendment or waiver effected in
accordance with this Section 8.5 shall be binding upon the Holder of this
Warrant (and of any securities for which this Warrant is exercisable or into
which this Warrant is convertible) each future holder of all such securities,
and the Company.
8.6 Severability. If one or more provisions of this Warrant are held
to be unenforceable under applicable law, such provision shall be excluded from
this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8.7 Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
giving effect to its conflicts of laws principles.
Date: March 9, 2000 DISCOVERY PARTNERS INTERNATIONAL, INC.,
a California Corporation
By: /s/ Jack Fitzpatrick
------------------------------------
Jack Fitzpatrick,
Chief Financial Officer
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<PAGE> 8
SCHEDULE 1
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: DISCOVERY PARTNERS INTERNATIONAL, INC.
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ___________* shares of the Preferred Stock of
Discovery Partners International, Inc., and herewith makes payment of $_______
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________, whose address is
___________________.
---------------------------------------
(Signature must conform in all respects
to name of the Holder as specified on
the face of the Warrant)
---------------------------------------
(Print Name)
---------------------------------------
(Address)
Dated:____________
*Insert here the number of shares as to which the Warrant is being exercised.
<PAGE> 1
EXHIBIT 10.32
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated February 9, 1996 by and
between COMDISCO, INC. ("Lessor") and IRORI, Inc. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent interval at the
address specified in Lessor" invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor, in no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorized Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
form and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be use by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured Party,
despite any defense or claim which it has against Lessor, Lessee reserves its
right to have recourse directly against Lessor for any defense or claim;
<PAGE> 2
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacture of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee' security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee" Articles of Incorporation or
Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or constitute
a default under, any indenture, mortgage, contract or other instrument to which
it is a party or by which it is bound, and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee, enforceable in
accordance with their terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and rules of law
concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any court
or before any governmental commission, board or authority which, if adversely
determined, will have a material adverse effect on the ability of the Lessee to
perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have occurred in the ordinary course of business, and which
have not been, in any case or in the aggregate, materially adverse to Lessee's
ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
-2-
<PAGE> 3
limited to the cost of returning the equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnity and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable Schedule by
appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO
-3-
<PAGE> 4
MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN.
Lessor may sell, lease or otherwise dispose of all or any part of the Equipment
at a public or private sale for cash or credit with the privilege of purchasing
the Equipment. The proceeds from any sale, lease or other disposition of the
Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the initial Term less the Default
Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30 days following the
date of such meeting held during the term of this master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determine (in reasonable good faith) that Lessee
will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing a termination fee equal to
the present value (discounted at 6%) of the remaining Rend for the balance of
the initial Term(s) of all Schedules, and will return the Equipment in
accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determine by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreement or
understandings between the parties concerning the Equipment including, for
example, purchase order. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt of (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE SATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS
-4-
<PAGE> 5
WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR REMEDIES
REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE CONFERRED ON
LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
Advance - means the amount due to Lessor by Lessee upon lessee's execution of
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
Casualty Value - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
Default Costs - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date - means date of delivery of inventory Equipment to Lessee's
address.
Equipment - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
Event of Default - means the events described in Subsection 13.1.
Fair Market Value - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
full Rent interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent intervals indicated on a Schedule.
Interim Rent - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
interval included in the initial Terms.
Late Charge - means the lessor of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
Licensed Products - means any software or other licensed products attached to
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
Notice Period - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
Owner - means the owner of Equipment.
Rent - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
-5-
<PAGE> 6
Rent Interval - means a full calendar month or quarter as indicated on a
Schedule.
Schedule - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
Secured Party - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
Summary Equipment Schedule - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Less approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written
IRORI, Inc. COMDISCO, INC.
as Lessee as Lessor
By: /s/ illegible By: /s/ James P. Labe
- ----------------------------------- -----------------------------------
Title: CEO Title: JAMES P. LABE, PRESIDENT
------------------------- -----------------------------
VENTURE LEASE DIVISION
-6-
<PAGE> 7
COMDISCO
- --------------------------------------------------------------------------------
Facsimile Cover Sheet Date: April 4, 1996
TO: Ms. Brenda McGill FROM: Nancy Talarski
COMPANY: Irori, Inc. COMPANY: COMDISCO, INC.
FAX#: 619-546-3083 PHONE#: (847) 698-3000 x5455
- --------------------------------------------------------------------------------
SUMMARY EQUIPMENT SCHEDULE
<TABLE>
<S> <C> <C> <C>
LESSEE: IRORI, INC.
EQUIPMENT SCHEDULE NO.: VL-1 SL NUMBER: 18-SL32083-00
P NUMBER: 18-P 27895-00
FOR PERIOD BEGINNING: 1/1/96 AND ENDING: 3/31/96
INITIAL TERM START DATE: 4/1/96 INITIAL TERM: 48 Months
TOTAL LESSOR'S COST: $76,485.20 RENT: $1,902.95
LEASE RATE FACTOR: 2.488%
ACCEPTANCE DOC TYPE: Approved Vendor Invoices
</TABLE>
Payments Made:
VENDOR ALLOCATED
NAME AMT
WALLAC, INC 54,862.50 040396
MOLECUAR D 21,622.70 040396
<PAGE> 8
EQUIPMENT SCHEDULE VL-1
DATED AS OF FEBRUARY 9, 1996
TO MASTER LEASE AGREEMENT
DATED AS OF FEBRUARY 9, 1996 (THE "MASTER LEASE")
LESSEE: IRORI, Inc LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Mr. Michael Nova
Ph. (619) 793-8533 6111 North River Road
Fax (619) 546-3083 Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
11025 North Torrey Pines Rd., Suite 100
La Jolla, CA 92037
Attn.:
Central Billing Location: Rent Interval: Monthly
Same as above.
Attn.:
Lessee Reference No.:___________________
(24 digits maximum)
Location of Equipment: Initial Term: 48
Same as above. (Number of Rent Intervals)
Attn.: Lease Rate Factor: 2.488%
EQUIPMENT (as defined below): Advance: $6,220.00
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period February 9, 1996 through September 15, 1996
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $250,000 ("Commitment
Amount"); excluding custom use equipment, leasehold improvements, installation
costs and delivery costs, rolling stock, special tooling, "stand-alone"
software, application software bundled into computer hardware, hand held items,
molds and fungible items.
<PAGE> 9
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease
to Lessee, either by one of the first three categories listed below or by
providing Losses with Equipment from the fourth category, in a value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii) or (iii) below, the effectiveness of this
Schedule as it relates to those item of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
Lessor will finance only the acquisition of individual items of
Equipment with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed
at Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under
this Lease (the "Sale-Leaseback Transaction"). Any request
for a Sale-Leaseback Transaction must be submitted to Lessor
in writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than March 9, 1996*. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor's prior approval of the Equipment; and (2) if
approved, at a purchase price of Lessee's current book
value.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised Value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may
supply new or used Equipment from its inventory at rates
provided by Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment location,
description, serial number(s) and cost and will incorporate the terms and
conditions of the Master Leave and this Schedule and will constitute a separate
lease.
3. Option to Extend
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its team. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than ninety (90) days prior written notice, which
notice shall be effective am of the date of receipt.
4. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the
<PAGE> 10
applicable Summary Equipment schedule, Lessee will have the option at the
expiration at the Initial Term, of the Summary Equipment Schedule to purchase
all, but not less than all of the equipment listed therein for a purchase price
and upon terms and conditions to be mutually agreed upon by the parties
following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the initial Term or extended term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of
the-purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to agree
on the purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall remain
in full fares and effect. Notwithstanding the exercise by Lessee of this option
and payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment. At
listed and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified
on page 1 of this schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations and
warranties set forth in section 8) except as modified herein by this schedule.
This Schedule may not be amended ox rescinded except by a writing signed by both
parties.
IRORI, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ illegible By: /s/ James P. Labe
----------------------------------- -----------------------------------
Title: CEO Title: JAMES P. LABE, PRESIDENT
-------------------------------- --------------------------------
VENTURE LEASE DIVISION
Dated: Dated:
-------------------------------- --------------------------------
<PAGE> 11
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE> 12
COMDISCO
SUMMARY EQUIPMENT SCHEDULE
847/518-5455 Comdisco, Inc.
6111 North River Road
Rosemont, IL 60018
Date: July 2,1996
To: Ms. Susan Sisk From Nancy Talarski
Company: IRORI INC Company: Comdisco, Inc.
Fax #: 619-546-3083 Phone #: 847-518-5455
Lessee: IRORI, INC. Equip. Schedule VL-1
SL #: 18-SL32083-01 P #: 18-P27895-01
For Period Beginning: 4/1/96 And Ending: 6/30/96
Initial Term Start: 7/l/96 Initial Term: 48 MOS.
Total Lessor's Cost: $127,174.00 LRF: 2.4888
Rent: $3,165.11
Acceptance Doc Type: PLB OF INSTALLED AGREEMENT
Payments Made:
IRORI $127,174.00
<PAGE> 13
Schedule CMD 01
Amortization schedule
<TABLE>
<CAPTION>
INTEREST PRINCIPAL REMAINING REMAINING
PAYMENT # BORROWINGS DATE PAYMENT PAID PAID PRINCIPAL PAYMENTS
--------- ---------- ---- ------- ---- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
81,839.00
97,566.16
1 $ 58,702.88 2/6/96 1,195.95 920.69 275.26 81,563.74 96,370.21
2 $ 23,136.29 3/l/96 2,050.43 917.59 1,132.84 80,430.90 94,319.78
3 4/l/96 2,050.43 904.85 1,145.58 79,285.32 92,269.35
4 5/1/96 2,050.43 891.96 1,158.47 78,126.85 90,218.92
5 6/l/96 2,050.43 878.93 1,171.50 76,955.35 88,168.49
6 7/l/96 2,050.43 865.75 1,184.68 75,770.66 86,118.06
7 8/l/96 2,050.43 852.42 1,198.01 74,572.65 84,067.63
8 9/l/96 2,050.43 838.94 1,211.49 73,361.17 82,017.20
9 10/l/96 2,050.43 825.31 1,225.12 72,136.05 79,966.77
10 11/l/96 2,050.43 811.53 1,238.90 70,897.15 77,916.34
11 12/l/96 2,050.43 797.59 1,252.84 69,644.31 75,865.91
12 1/1/97 2,050.43 783.50 1,266.93 68,377.38 73,815.48
13 2/l/97 2,050.43 769.25 1,281.18 67,096.20 71,765.05
14 3/l/97 2,050.43 754.83 1,295.60 65,800.60 69,714.62
15 4/l/97 2,050.43 740.26 1,310.17 64,490.42 67,664.19
16 5/1/97 2,050.43 725.52 1,324.91 63,165.51 65,613.76
17 6/l/97 2,050.43 710.61 1,339.82 61,825.69 63,563.33
18 7/1/97 2,050.43 695.54 1,354.89 60,470.80 61,512.90
19 8/1/97 2,050.43 680.30 1,370.13 59,100.67 59,462.47
20 9/1/97 2,050.43 664.88 1,385.55 57,715.12 57,412.04
21 10/l/97 2,050.43 649.30 1,401.13 56,313.99 55,361.61
22 11/l/97 2,050.43 633.53 1,416.90 54,897.09 53,311.18
23 12/1/97 2,050.43 617.59 1,432.84 53,464.25 51,260.75
24 1/1/98 2,050.43 601.47 1,448.96 52,015.29 49,210.32
25 2/l/98 2,050.43 585.17 1,465.26 50,550.04 47,159.89
26 3/l/98 2,050.43 568.69 1,481.74 49,068.29 45,109.46
27 4/l/98 2,050.43 552.02 1,498.41 47,569.88 43,059.03
28 5/l/98 2,050.43 535.16 1,515.27 46,054.61 41,008.60
29 6/l/98 2,050.43 518.11 1,532.32 44,522.30 38,958.17
30 7/l/98 2,050.43 500.88 1,549.55 42,972.74 36,907.74
31 8/l/98 2,050.43 483.44 1,566.99 41,405.76 34,857.31
32 9/l/98 2,050.43 465.81 1,584.62 39,821.14 32,806.88
33 10/1/98 2,050.43 447.99 1,602.44 38,218.70 30,756.45
34 11/1/98 2,050.43 429.96 1,620.47 36,598.23 28,706.02
35 12/l/98 2,050.43 411.73 1,638.70 34,959.53 26,655.59
36 1/1/99 2,050.43 393.29 1,657.14 33,302.40 24,605.16
37 2/l/99 2,050.43 374.65 1,675.78 31,626.62 22,554.73
38 3/l/99 2,050.43 355.80 1,694.63 29,931.99 20,504.30
39 4/l/99 2,050.43 336.73 1,713.70 28,218.29 18,453.87
40 5/l/99 2,050.43 317.46 1,732.97 26,485.32 16,403.44
41 6/l/99 2,050.43 297.96 1,752.47 24,732.85 14,353.01
42 7/l/99 2,050.43 278.24 1,772.19 22,960.66 12,302.58
43 8/l/99 2,050.43 258.31 1,792.12 21,168.54 10,252.15
44 9/l/99 2,050.43 238.15 1,812.28 19,356.26 8,201.72
45 10/1/99 2,050.43 217.76 1,832.67 17,523.58 6,151.29
46 11/l/99 2,050.43 197.14 1,853.29 15,670.29 4,100.86
47 12/l/99 2,050.43 176.29 1,874.14 13,796.15 2,050.43
48 1/1/00 2,050.43 155.21 1,895.22 11,900.93 --
49 15% buyout 2/l/00 12,275.85 133.89 12,141.96 (241.03)
14,326.28
</TABLE>
<PAGE> 14
Schedule CMD 02
Amortization schedule
<TABLE>
<CAPTION>
INTEREST PRINCIPAL REMAINING REMAINING
PAYMENT # BORROWINGS DATE PAYMENT PAID PAID PRINCIPAL PAYMENTS
--------- ---------- ---- ------- ---- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$127,174.00
127,174.00 150,578.52
1 5/1/96 -- 1,409.51 (1,409.51) 128,583.51 150,578.52
2 6/l/96 1,818.82 1,425.13 393.69 128,189.83 148,759.70
3 7/l/96 6,330.20 1,420.77 4,909.43 123,280.40 142,429.50
4 8/1/96 3,165.10 1,366.36 1,798.74 121,481.65 139,264.40
5 9/l/96 3,165.10 1,346.42 1,818.68 119,662.98 136,099.30
6 10/l/96 3,165.10 1,326.26 1,838.84 117,824.14 132,934.20
7 11/l/96 3,165.10 1,305.88 1,859.22 115,964.92 129,769.10
8 12/l/96 3,165.10 1,285.28 1,879.82 114,085.10 126,604.00
9 1/1/97 3,165.10 1,264.44 1,900.66 112,184.45 123,438.90
10 2/l/97 3,165.10 1,243.38 1,921.72 110,262.72 120,273.80
11 3/l/97 3,165.10 1,222.08 1,943.02 108,319.70 117,108.70
12 4/l/97 3,165.10 1,200.54 1,964.56 106,355.15 113,943.60
13 5/l/97 3,165.10 1,178.77 1,986.33 104,368.81 110,778.50
14 6/l/97 3,165.10 1,156.75 2,008.35 102,360.47 107,613.40
15 7/l/97 3,165.10 1,134.50 2,030.60 100,329.86 104,448.30
16 8/l/97 3,165.10 1,111.99 2,053.11 98,276.75 101,283.20
17 9/1/97 3,165.10 1,089.23 2,075.87 96,200.89 98,118.10
18 10/l/97 3,165.10 1,066.23 2,098.87 94,102.01 94,953.00
19 11/l/97 3,165.10 1,042.96 2,122.14 91,979.88 91,787.90
20 12/l/97 3,165.10 1,019.44 2,145.66 89,834.22 88,622.80
21 1/l/98 3,165.10 995.66 2,169.44 87,664.78 85,457.70
22 2/1/98 3,165.10 971.62 2,193.48 85,471.30 82,292.60
23 3/l/98 3,165.10 947.31 2,217.79 83,253.51 79,127.50
24 4/l/98 3,165.10 922.73 2,242.37 81,011.14 75,962.40
25 5/l/98 3,165.10 897.87 2,267.23 78,743.91 72,797.30
26 6/l/98 3,165.10 872.74 2,292.36 76,451.55 69,632.20
27 7/l/98 3,165.10 847.34 2,317.76 74,133.79 66,467.10
28 8/l/98 3,165.10 821.65 2,343.45 71,790.34 63,302.00
29 9/l/98 3,165.10 795.68 2,369.42 69,420.92 60,136.90
30 10/l/98 3,165.10 769.42 2,395.68 67,025.23 56,971.80
31 11/l/98 3,165.10 742.86 2,422.24 64,603.00 53,806.70
32 12/1/98 3,165.10 716.02 2,449.08 62,153.91 50,641.60
33 1/l/99 3,165.10 688.87 2,476.23 59,677.69 47,476.50
34 2/l/99 3,165.10 661.43 2,503.67 57,174.01 44,311.40
35 3/l/99 3,165.10 633.68 2,531.42 54,642.59 41,146.30
36 4/l/99 3,165.10 605.62 2,559.48 52,083.11 37,981.20
37 5/1/99 3,165.10 577.25 2,587.85 49,495.27 34,816.10
38 6/l/99 3,165.10 548.57 2,616.53 46,878.74 31,651.00
39 7/l/99 3,165.10 519.57 2,645.53 44,233.21 28,485.90
40 8/l/99 3,165.10 490.25 2,674.85 41,558.36 25,320.80
41 9/1/99 3,165.10 460.61 2,704.49 38,853.87 22,155.70
42 10/l/99 3,165.10 430.63 2,734.47 36,119.40 18,990.60
43 11/l/99 3,165.10 400.32 2,764.78 33,354.62 15,825.50
44 12/l/99 3,165.10 369.68 2,795.42 30,559.20 12,660.40
45 1/l/00 3,165.10 338.70 2,826.40 27,732.80 9,495.30
46 2/1/00 3,165.10 307.37 2,857.73 24,875.07 6,330.20
47 3/l/00 3,165.10 275.70 2,889.40 21,985.67 3,165.10
48 4/l/00 3,165.10 243.67 2,921.43 19,064.25 --
49 15% buyout 5/1/00 19,076.10 211.30 18,864.80 199.44
</TABLE>
<PAGE> 1
EXHIBIT 10.35
ASSIGNMENT AGREEMENT
This Assignment Agreement is entered into this 17th day of December 1998
between ONTOGEN Corporation, a California corporation located at 6451 El Camino
Real, Carlsbad, CA 92009 ("ONTOGEN"), and DISCOVERY PARTNERS INTERNATIONAL,
INC., dba IRORI, California corporation located at 11149 North Torrey Pines
Road, La Jolla, CA 92037 ("IRORI").
WHEREAS ONTOGEN has developed and filed patent applications, and has
been issued a patent, describing certain technology relating to the labeling of
chemical libraries; and
WHEREAS IRORI wishes to acquire rights in such technology.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
of this Agreement, the parties agree as follows:
1. ONTOGEN hereby agrees to assign all rights, title and interest in US
Patent Number 5,770,455 entitled Methods and Apparatus for Synthesizing Labeled
Combinatorial Chemistry Libraries, issued June 23, 1998 and US Patent
Application Serial Number 383,766, entitled Methods and Apparatus for
Synthesizing Labeled Combinatorial Chemistry Libraries, filed February 2, 1995,
and to all inventions described therein, and any and all continuations,
continuations-in-part, reissues, divisionals, foreign counterparts, and other
patents and/or patent applications that are counterparts to or claim priority to
any of the above patents or patent applications (collectively, hereinafter "the
Patents") to IRORI by execution as of the date hereof of the Assignments
attached herein as Exhibits I and II.
2. In consideration of the above assignment, IRORI agrees to pay to
ONTOGEN *** upon execution of this Agreement and an additional ***
on January 1, 1999. ONTOGEN will retain a security interest in the Patents until
such additional payment has been received.
3. IRORI hereby grants to ONTOGEN a fully paid-up, irrevocable right and
license (without the right of sublicense) to the technology described in the
Patents only for internal use, which may include commercial use.
4. ONTOGEN EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR NON-INFRINGEMENT. IN NO EVENT WILL ONTOGEN BE LIABLE FOR
ANY DAMAGES OF ANY KIND, HOWEVER, CAUSED AND ON ANY THEORY OF LIABILITY, ARISING
OUT OF THIS AGREEMENT. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE
OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
Page 1 of 2
<PAGE> 2
5. This Agreement shall be governed by and construed, and the rights and
duties of the parties shall be determined in accordance with the law of the
State of California.
6. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties.
7. This Agreement, together with Exhibits I and II, attached hereto,
which are incorporated into and made a part of this Agreement, sets forth the
entire agreement and understanding of the parties as to the subject matter
hereof and supersedes all previous negotiations, commitments and writings. No
waiver, amendment or modification of this Agreement shall be effective against
Assignee, unless in writing executed by a duly authorized representative of
Assignee.
8. ONTOGEN represents and warrants that it is the owner of all rights to
the Patents and has the authority to assign all rights to the Patents to IRORI
as provided herein. "All rights" includes, without limitation, ONTOGEN not
having given anyone any license under any of the Patents.
IN WITNESS THEREOF, the parties hereto have caused this agreement to be
executed by their respective offices duly authorized, effective as of the date
and year written above.
ONTOGEN CORPORATION DISCOVERY PARTNERS
INTERNATIONAL, INC. (dba IRORI)
By: /s/ Barry Toyonaga By: /s/ Riccardo Pigliucci
------------------------------ ------------------------------------
Name: Barry Toyonaga Name: Riccardo Pigliucci
---------------------------- ----------------------------------
Title: President Title: President and CEO
--------------------------- ---------------------------------
Page 2 of 2
<PAGE> 1
EXHIBIT 10.36
[LOGO] BANK OF AMERICA
================================================================================
CORPORATE RESOLUTION TO OBTAIN CREDIT
RESOLVED, that this corporation, Discovery Partners International, Inc.,
may:
1. borrow from Bank of America National Trust and Savings Association
("Bank");
2. obtain for the account of this corporation commercial and standby
letters of credit issued by Bank;
3. obtain for the account of this corporation Bank's acceptance of
drafts and other instruments; and
4. discount with or sell to Bank notes, acceptances, drafts, receivables
and other evidences of indebtedness, and assign or otherwise transfer to Bank
any security interest or lien for such obligations;
from time to time, in such amount or amounts as in the judgment of the
Authorized Officers (as hereinafter defined) this corporation may require (the
credit facilities described in the first part of this resolution are
collectively referred to herein as the "Credit Facilities"); provided, however,
that the aggregate principal amount outstanding at any one time under the Credit
Facilities authorized by this resolution shall not exceed the sum of Seven
Hundred Thousand and 00/100 Dollars ($700,000.00), which sum shall be in
addition to such other amount or amounts as otherwise may be authorized.
RESOLVED FURTHER, that his corporation is authorized to enter into one
or more agreements with the Bank relating to any interest rate swap, any forward
rate transaction, any interest rate cap or collar transaction, any similar
transaction, any option to enter into any of the foregoing or any combination of
any of the foregoing, which agreements may be oral or in writing (collectively
referred to herein as "Swap Contracts").
RESOLVED FURTHER, that the Authorized Officers are hereby authorized and
directed, as security for any obligation or obligations of this corporation to
Bank, whether arising pursuant to these resolutions or otherwise, to grant in
favor of Bank a security interest in or lien on any real or personal property
belonging to or under the control of this corporation.
RESOLVED FURTHER, that
1. If only one signature is obtained, any one of the
following:
a. Riccardo Pigliucci, President and Chief
Executive Officer
b. Jack Fitzpatrick, Chief Financial Officer
and Secretary
c.
d.
e.
f.
2. If two signatures are obtained, any one of the
followings:
a.
b.
c.
d.
e.
f.
together with any one of the following:
g.
h.
i.
j.
k.
l.
of this corporation, acting individually or in any combination as may be set
forth above (the "Authorized Officers"), are hereby authorized and directed, in
the name of this corporation, to execute and deliver to Bank, and Bank is
requested to accept:
a. the notes, credit agreements, advance account agreements, acceptance
agreements, letter of credit applications and agreements, purchase agreements or
other instruments, agreements and documents which evidence the obligations of
this corporation under the Credit Facilities obtained pursuant to these
resolutions;
-1-
<PAGE> 2
b. any and all security agreements, deeds of trust, mortgages, financing
statements, fixture filings or other instruments, agreements and documents with
respect to any security interest or lien authorized to be given pursuant to
these resolutions;
c. any master agreement and the related schedule, confirmation or
other agreement or certificate as Bank may require relating to Swaps Contracts;
and
d. any other instructions, agreements and documents as Bank may
require and the Authorized Officers may approve.
RESOLVED FURTHER, that the Authorized Officers are hereby authorized
and directed, in the name of this corporation, to endorse, assign to Bank, and
deliver to Bank, any and all notes, acceptances, drafts, receivables and other
evidences of indebtedness discounted with or sold to Bank, together with any
security interest or lien for such obligations, and to guarantee the payment of
the same to Bank. RESOLVED FURTHER, that any and all of the instruments,
agreements and documents referred to above may contain such recitals, covenants,
agreements and other provisions as Bank may require and the Authorized Officers
may approve, and the execution of such instruments, agreements and documents by
the Authorized Officers shall be conclusive evidence of such approval, and that
the Authorized Officers are authorized from time to time to execute renewals or
extensions of any and all such instruments, agreements and documents. RESOLVED
FURTHER, that Bank is authorized to act upon the foregoing resolutions until
written notice of revocation is received by Bank, and that the authority hereby
granted shall apply with equal force and effect to the successors in office of
the Authorized Officers.
CORPORATE SECRETARY'S CERTIFICATE
I, Jack Fitzpatrick, Secretary of Discovery Partners International,
Inc., a corporation organized and existing under the laws of the State of
California (the "Corporation"), hereby certify that the foregoing is a full,
true and correct copy of resolutions of the Board of Directors of the
Corporation, duly and regularly adopted by the Board of Directors of the
Corporation in all respects as required by law and the by-laws of the
Corporation on February 3, 1999, at a meeting at which a quorum of the Board of
Directors of the Corporation was present and the requisite number of such
Directors of the Corporation to the adoption of said resolutions. I further
certify that said resolutions are still in full force and effect and have not
been amended or revoked, and that the specimen signatures appearing below are
the signatures of the officers authorized to sign for the Corporation by virtue
of such resolutions.
Date: Feb 3 , 1999
--------------------
AUTHORIZED SIGNATURES:
X /s/ Riccardo Pigliucci X /s/ Jack Fitzpatrick
----------------------------- --------------------------------------
Riccardo Pigliucci, Jack Fitzpatrick
President and Secretary of
Chief Executive Officer Discovery Partners International, Inc.
a California corporation
X /s/ Jack Fitzpatrick
-----------------------------
Jack Fitzpatrick,
Chief Financial Officer and Secretary
X
-----------------------------
X Affix Corporate Seal Here:
-----------------------------
[SEAL]
X
-----------------------------
X
-----------------------------
-2-
<PAGE> 1
EXHIBIT 10.37
NON-EXCLUSIVE SUBLICENSE AGREEMENT
This Non-exclusive Sublicense Agreement is entered into as of the 1st
day of May, 1998 (the "Agreement") by and between Trega Biosciences, Inc., a
corporation having an address at 9880 Campus Point Drive, San Diego, California
92121 ("Trega") and Irori, a corporation having an address at 11149 North Torrey
Pines Road, La Jolla, California 92037 ("Irori").
RECITALS
WHEREAS, Trega has rights to certain issued and pending patents
pertaining to devices and methods for the solid phase synthesis of chemical
compounds, which it possesses by virtue of having licensed the same from the
Scripps Research Institute; and
WHEREAS, Irori manufactures various types of equipment useful for the
solid phase synthesis of chemical, compounds for use by laboratory researchers;
and
WHEREAS, Irori desires to obtain a non-exclusive sublicense to certain
of Trega's devices and methods and Trega desires to license the same to Irori on
a non-exclusive basis;
NOW, THEREFORE, in consideration of the mutual and respective promises
and covenants contained herein, the parties intending to be legally bound hereby
agree as follows:
ARTICLE I
Definitions
When used in this Agreement, each of the following terms shad have the
meanings set forth in this Article I.
1.1 "Affiliate" shall mean any corporation, partnership, or other
entity, which directly or indirectly controls, is controlled by, or is under
common control with a referenced party. Control shall mean ownership of at least
fifty percent (50%) (or such lesser percentage which is the maximum allowed to
be owned by a foreign corporation in a particular jurisdiction) of the equity or
other ownership interest having the power to vote on or direct the affairs of
such corporation, partnership, or other entity.
1.2 "Contract Year" shall mean with respect to the first Contract Year,
the period beginning on the Effective Date of this Agreement and ending on
December 31, 1998. The second and subsequent Contract Years shall commence on
the day following the end of the first Contract Year and shall end on December
31 of each such ensuing year.
1.3 "Effective Date" shall mean the date as of which this Agreement was
entered into by the parties and set forth above.
1.4 "Field" shall mean production of laboratory research quantities of
chemical compounds.
<PAGE> 2
1.5 "Licensed Products" shall mean rigid polypropylene devices with
polypropylene mesh walls used as microreactors for the solid phase synthesis of
research quantities of chemical compounds. This definition includes the
MicroKan(TM) family and any such future reactors falling within the above
definition.
1.6 "Net Sales" shall mean the product of (a) that number of units of
Licensed Products used by Irori and its Affiliates plus the number of units of
Licensed Products sold or given away by Irori and its Affiliates to unrelated
third parties and (b) the published Irori standard list price of Licensed
Products in effect from time to time, less (i) refunds for rejected or returned,
but not replaced goods, (ii) retroactive price reductions, (iii) customs duties
and other imposts, (iv) taxes (such as excise, use, value added and sales), and
(v) freight and insurance.
1.7 "Trega Technology" shall mean the following patents and patent
applications together with divisionals, continuations, and continuations in part
thereof, namely: U.S. Patent 4,631,211; European Patent Publication No. 196174B1
designating Austria, Belgium, Switzerland, and Lichtenstein; Australia Patent
594,327; Canada Patent Application 504,886 (notice of allowance); and Japan
patent application 61-67024.
1.8 "Valid Claim" shall mean an unexpired, issued patent claim which has
not been found to be unpatentable, invalid, or unenforceable by a court or other
authority in the subject country, from which decision no appeal is taken or can
be taken.
1.9 "User" shall mean an original purchaser, lessee, or recipient of a
Licensed Product from Irori.
ARTICLE II
License Grant
2.1 Technology Grant. Trega hereby grants to Irori and its Affiliates a
non-exclusive worldwide sublicense under Trega Technology to make, have made,
use, import, market, have marketed, sell and have sold Licensed Products in the
Field, subject to the limitation that such license hereby specifically excludes
(i) the right to market, have marketed, to sell, have sold or otherwise transfer
Licensed Products to *** (this list shall be reviewed and modified up on mutual
consent of Trega and Irori on each anniversary of the effective date of this
Agreement) (the "Excluded Companies") and (ii) the right to allow the use of
Licensed Products by such Excluded companies. The foregoing sublicense shall be
subject to applicable terms and conditions set forth in the April 11, 1985
license agreement between the Scripps Research Institute and Trega, attached as
Exhibit A.
2.2 Sublicense Rights. Users of Licensed Products shall only have the
right to practice the Trega Technology in association with Licensed Products.
Users may transfer such right in whole with the transfer of Licensed Products to
parties other than the Excluded Companies but shall not be entitled to further
transfer rights in Trega Technology. Except for the rights granted by Irori in
connection with Licensed Products or transfers pursuant to this
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
2
<PAGE> 3
Section 2.2 each subsequent sublicense or transfer, other than by Irori to its
bona fide distributors, whether by Irori or another party, shall be expressly
conditioned upon the consent of The Scripps Research Institute.
2.3 Notice of License. All advertising material, packaging, and other
media describing or depicting Licensed Products shall indicate that such
Licensed Products are made and sold under license from Trega Biosciences, Inc.
Such notices shall be of a size and shall be placed on such locations as to be
likely to impart actual knowledge to recipients of the existence of a license.
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties.
(a) Trega represents and warrants that it controls the Trega
Technology conveyed hereby and that to its knowledge such rights are not the
subject of a claim of ownership by a third party other than the Scripps Research
Institute, and are not to its knowledge the subject of any encumbrance or lien.
(b) Trega covenants that at no time during the term of this
Agreement shall Trega assign, transfer, encumber, or otherwise grant rights in
or with respect to any of the Trega Technology inconsistent with the grants and
rights reserved to Irori under this Agreement.
(c) Trega represents and warrants that it has the full authority
and power to enter into and perform the duties and obligations contemplated for
it under this Agreement, including, but not limited to, the grant of licenses
set forth herein, subject to the approval of this Agreement by The Scripps
Research Institute.
(d) Irori represents and warrants that it has the full authority
and power to enter into and perform the duties and obligations contemplated for
it under this Agreement.
ARTICLE IV
Confidentiality
4.1 Confidentiality. Except as otherwise provided in this Article IV,
during the term of this Agreement, and for a period of five (5) years following
the expiration or earlier termination of this Agreement, each party shall
maintain in confidence all confidential or proprietary information of the other
party (including biological or chemical materials) disclosed by the other party
under this Agreement (the "Confidential Information"), and shall not use,
disclose, or grant the use of the Confidential Information of the other party
except on a need to know basis to it and its Affiliates' and licensees'
directors, officers, employees, permitted assignees, agents, consultants,
suppliers, attorneys, accountants, investment bankers, insurance brokers,
carriers, and third parties 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
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
3
<PAGE> 4
notify the other promptly upon discovery of any unauthorized use or disclosure
of the other party's Confidential Information.
4.2 Permitted Disclosures. The confidentiality obligations contained in
Section 4.1 above shall not apply to the extent that (a) a receiving party (the
"Recipient") is required (i) to disclose information by law, order, or
regulation of a governmental agency or a court of competent jurisdiction or (ii)
to defend against litigation, provided in either case that the Recipient shall
provided to the disclosing party written notice and sufficient opportunity to
abject to such disclosure or to request confidential treatment thereof; or (b)
the Recipient can demonstrate that (i) the disclosed information was public
knowledge, other than as a result of actions of the Recipient, its affiliates,
and licensees in violation hereof; (ii) the disclosed information was rightfully
known by the Recipient, its affiliates or licensees (as shown by its written
records) prior to the date of disclosure to the Recipient by the other party
hereunder, or (iii) the disclosed information was received by the Recipient, its
affiliates or licensees on an unrestricted basis from a source unrelated to any
party to the Agreement and not under a duty of confidentiality to the other
party or (iv) the information was independently developed by the Recipient
without the use of Confidential Information of the disclosing party.
ARTICLE V
Remuneration
5.1 Sublicense Fee and Patent Royalty. Irori and its Affiliates, as the
case may be, shall pay to Trega or its designees:
(a) a one-time sublicense fee of *** , payable in two equal
installments on June 1, 1998 and on June 1, 1999; and
(b) a royalty of *** of Net Sales from the date of this
Agreement in such jurisdictions where and while the manufacture, use,
importation, or sale of Licensed Products is covered by one or more Valid Claims
contained in Trega Technology. Such royalty shall be paid regardless of the
number of Valid Claims reflected in such Licensed Products.
(c) Irori and its Affiliates shall pay, in the aggregate, to
Trega a minimum royalty equal to *** but not to exceed *** per Contract
Year, which payment may include payment in lieu of royalty to achieve the
minimum amount due. During the first Contract Year, as defined in Section 1.2,
the minimum royalty will be *** and the maximum royalty will be *** .
(d) a fee of *** per entity in addition to all other amounts
due hereunder payable upon the earlier of the first sale to or the first rise of
a Licensed Product by each of the following entities: *** *** .
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
4
<PAGE> 5
(e) the assignment fee set forth in Section 10.5 shall be paid to
Trega the event of a change of control of Irori.
5.2 Term of Royalty Payment. Royalties paid by Irori and its Affiliates
pursuant to this Article V shall be paid on a country-by-country basis from the
first use or sale of Licensed Products in a particular country (at a time when
the manufacture, use, importation or sale of Licensed Product is covered by one
or more valid claims contained in Trega Technology) until the last to expire of
applicable Trega Technology in that country for which a Valid Claim therefor
would be infringed by the manufacture, use, importation, or sale of Licensed
Products in such, country.
5.3 Payments.
(a) Royalty payments hereunder shall be made to Trega or its
designee on each May 1, August 1, November 1, and February 1 in respect of
sales, use, and gifts during the three month periods ending March 31, June 30,
September 30, and December 31, respectively. Each royalty payment shall be
accompanied by a statement setting forth the Net Sales of the Licensed Products
during each quarter of the Contract Year.
(b) At any time during the term of this Agreement, Trega may
offset accrued, but unpaid amounts due to Trega hereunder against the purchase
price of Irori products at a 33% discount from the prices set forth in Irori's
standard, then applicable, commercial price list.
5.4 Records. Irori and its Affiliates shall keep and maintain records of
disposition of Licensed Products, whether by sale or otherwise. Such records
shall be open to inspection, at any reasonable time within two (2) years after
the royalty period to which such records relate, by an independent certified
public accountant reasonably acceptable to Irori, selected by Trega and retained
at Trega's expense. Such accountant shall have the right to examine the records
kept pursuant to this Section 5.4 and report to Trega the findings of said
examination of records insofar as necessary to verify the reports made by Irori
to Trega. Such accountant, however, shall only report his conclusions. If he
determines that the royalty paid for the period in question was correctly paid,
the report shall be limited to confirmation of payment in full. If the
accountant is of the opinion that the royalty has been understated or
overstated, he shall so state, and indicate the amount of such underpayment or
overpayment. The accountant shall not provide to Trega any details pertaining to
information relating to Irori's customers, cost of goods sold, gross or net
operating profit or any other detailed financial information of a kind or
character that Irori indicates to the accountant that it normally maintains in
confidence, provided, however, the accountant shall be entitled to report the
information on which his determination of overpayment or underpayment is based.
Said findings and information shall be maintained in confidence by Trega and its
agents. The foregoing obligation of confidentiality shall not be construed to
prevent the use of such findings and information by Trega in enforcing its right
to royalties hereunder.
5.5 Royalty Disputes. If the independent certified public accountant
shall determine that an overpayment or underpayment of loyalties has been made,
he shall promptly notify Trega and Irori. If either party seeks to address such
discrepancy with the other party, it must do so within forty-five (45) days of
receipt of the independent certified public accountant's report or the parties
shall be deemed to have waived the reported discrepancy.
5
<PAGE> 6
5.6 Taxes. Any and all taxes levied on account of royalties due to Trega
under this Agreement shall be paid by Trega. If laws or regulations require
withholding of said taxes, such taxes will be deducted by Irori from such
remittable royalty and will be paid by Irori to the taxing authority, and proof
of payment shall be sent to Trega within sixty (60) days following payment
thereof.
ARTICLE VI
Patents and Infringement
6.1 Infringement
(a) If either Trega or Irori shall receive a claim or assertion
that practice of the rights licensed under this Agreement infringes or otherwise
violates the intellectual property rights of any third party, then the party
becoming so informed shall promptly notify the other party to this Agreement of
the claim or assertion and shall provide the other party with such notice and
all reasonable details relating thereto. Trega shall have the primary right, but
not the obligation, to defend against such claim. Irori shall reasonably
cooperate with Trega at Trega's request and expense in such defense and shall
have the right to be represented by counsel of its own choice and at Irori's
expense. If Trega shall fail to commence a defense against such claim within a
period of twenty (20) days after receiving written notice from Irori or a third
parry of such claim, Irori shall have the right to defend against such claim, at
its own expense, and to be represented by counsel of its own choice. Trega shall
reasonably cooperate with Irori at Irori's request and expense in such defense
and shall have the right to be represented by counsel of its choice arid at
Trega's expense. If Irori defends against such a claim due to Trega's failure to
defend, and there is a decision of a judge, arbitrator, or mediator that Irori
infringes or otherwise violates the intellectual property rights of any third
party by virtue of the practice of the rights licensed under this Agreement, or
there is a settlement requiring Irori to deliver anything of value to such
claimant, Irori shall be entitled to deduct the full cost of any such defense
plus any judgement or settlement amount from any royalty payments, whether
running or minimum, due or to become due to Trega.
(b) Subject to the foregoing, Irori shall be entitled, at its
sole option, to participate in the defense of any claim asserted by a third
party that practice under this Agreement constitutes an infringement or other
violation of the third party's industrial or intellectual property rights and as
to which Trega has asserted and assumed its right to control. The right to
participate shall include being named a party defendant and being kept advised
of all developments in the litigation and any efforts towards settlement, and
being provided currently with copies of all pleadings and documents produced and
depositions taken in the proceedings, except to the extent prohibited by the
court. In the event that Trega shall request it, Irori shall, as a participant,
designate Trega's counsel as Irori's counsel and shall waive any conflict that
might otherwise be present, but nothing in such designation shall preclude Irori
from retaining independent counsel for it alone at its own expense. Trega and
Irori shall cooperate to maximize the maintenance of the attorney-client
privileges and they shall each instruct their respective counsel accordingly.
Irori shall, as a condition of full participation in any such proceedings, agree
to be signatory to and be bound by any protective order that might be entered by
the count or stipulated to between Trega and the third party claimant and shall
otherwise comport itself in a
6
<PAGE> 7
manner designed to enhance Trega's defense of the action and further any
counterclaim Trega may assert.
(c) If as a result of a settlement or a final, nonappealable
judgment pursuant to litigation under Sections 6.1, Irori is required to pay a
third party a royalty for the right to make, have made, use, and sell or
continue to make, have made, use, and sell the Licensed Products in a particular
country, Irori may deduct from the amount of royalties owed to Trega for Net
Sales in such particular country to offset the actual payments to such third
party.
6.2 Infringement by Third Parties. If Irori learns that a third party
has infringed and/or misappropriated the Trega Technology in the Field, in a
particular country (referred to hereinafter as "Infringement"), it shall
promptly notify Trega of such apparent Infringement. Promptly after the receipt
of such notice by Irori, the parties shall meet to review the situation. Trega
shall have the right, but not the obligation to institute, prosecute, and
control any actions or proceedings in respect of such suspected Infringement at
its sole discretion and at its sole cost and expense. Trega shall be entitled to
receive and retain for its sole use and benefit, any recovery, settlement,
amount awarded in any such suit, including without limitation, awards of lost
profits, damages and/or punitive damages and/or costs, attorney's fees and
awards of sanction. If necessary or desirable in the judgment of Trega's
counsel, Irori hereby consents to be joined in any such action as a parry
plaintiff in such action and will otherwise give authority and reasonable
assistance to Trega at Trega's expense for Irori's out-of-pocket costs and
expenses in doing so, to file and prosecute any such suit, and shall retain
Trega's counsel to perfect attorney-client, work product, and like privileges,
in the conduct and prosecution of such action. Cooperation includes, but is not
limited to, assisting Trega with technical information, the basis for claiming
Infringement and such other matters as may be reasonably necessary for Trega to
conduct any such litigation. If Trega does not take action an a known
Infringement, Irori's obligation to pay royalties to Trega under Section V will
be suspended on a jurisdiction-by jurisdiction basis until the Infringement
ceases or the third party takes license to Trega Technology.
6.3 Prosecution of Patents. Trega shall control in its sole discretion
the prosecution of all patents or patent applications now or hereafter pending
and subject to the provisions of this Agreement.
6.4 No Contest of Patents. Irori hereby agrees to neither contest the
validity nor oppose the issuance of any Trega patents covered as Trega
Technology under this Agreement, whether in existence at the time of this
Agreement or those arising during the Agreement.
6.5 No Warranties. THIS LICENSE AND THE ASSOCIATED TREGA TECHNOLOGY ARE
PROVIDED WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE LICENSING PARTY MAKES NO
REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS OR USE OF THE TREGA
TECHNOLOGY WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT. IN NO EVENT
WILL TREGA BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL
7
<PAGE> 8
DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF THE TREGA
TECHNOLOGY OR LICENSED PRODUCTS.
ARTICLE VII
Indemnification
7.1 Indemnification. Each party hereby agrees to indemnify and hold
Trega and its Affiliates, officers, directors, employees, agents, and
stockholders harmless against any and all losses, liabilities, damages, claims,
judgments, demands, and expenses (including reasonable attorneys' fees) and
costs (together or individually, a "Loss") arising out of or in connection with
(i) the breach by such indemnifying party of any of its representations or
warranties contained in this Agreement; or (ii) the nonperformance, partial or
total, of any covenants of the indemnifying party contained in this Agreement.
Irori hereby agrees to indemnify and hold Trega and each of its Affiliates,
trustees, officers, directors, employees and stockholders harmless against any
Loss (including without limitation Loss arising out of any death or injury to
any person or persons or out of damage to any property) which results from the
production, manufacture, use, consumption, sale or advertisement of the Licensed
Products hereunder by Irori, its Affiliates, or sublicensees, or from the use by
Irori, its Affiliates or sublicensees of any Trega Technology hereunder.
As a condition to the indemnified party's night to indemnification under
this Article, the indemnified party shall give prompt written notice to the
indemnifying parry of any suits, claims or demands by third parties or the
indemnified party which may give rise to any Loss for which indemnification may
be required under this Article. The indemnifying party shall be entitled to
assume the defense and control of any suit, claim, or demand of any third party
at its own cost and expense; provided, however, that (i) the other party shall
have the right to be represented by its own counsel at its own cost in such
matters, and (ii) any settlement of such suit, claim or demand shall be subject
to the prior written consent of such other party, which consent shall not be
withheld or delayed unreasonably.
7.2 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article VII shall promptly notify the indemnifying
party (the "Indemnitor") of any Loss or action in respect of which the
Indemnitee intends to claim such indemnification, and 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 an
Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The indemnity obligations under
this Article VII 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 the Indemnitor, which consent shall not be withheld unreasonably. The
Indemnitee, its employees and agents, shall cooperate fully with the Indemnitor
and its legal representatives in the investigation and defense of any action,
claim, or liability covered by this indemnification.
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<PAGE> 9
7.3 Insurance. Irori agrees to insure, at its sole cost and expense, its
activities under this Agreement and to obtain, keep in force and maintain
insurance, including without limitation comprehensive or commercial form general
liability insurance including products/completed operations coverage, personal
and advertising injury coverage, and general aggregate coverage (commercial form
only) and such other coverages, in amounts consistent with prudent business
practice in the industry. Such coverages and limits shall not in any way limit
the liability of Irori. Irori shall furnish, Trega with certificates of
insurance evidencing compliance with the foregoing requirements. Such
certificates shall provide for thirty (30) days advance written notice to Trega
of any reduction in coverage or termination; shall indicate that Trega has been
endorsed as an additional named insured; and shall indicate that coverages will
be primary and will not participate with nor be excess over any valid and
collectible insurance of Irori.
ARTICLE VIII
Government Control
8.1 Authority. This Agreement is made subject to any restrictions
concerning the export of products or technical information from the United
States of America which may be imposed upon or related to Trega or Irori from
time to time by the government of the United States of America. Furthermore,
Trega and Irori each agrees that it will not export, directly or indirectly, any
technical information acquired from the other under this Agreement or any
products utilizing such technical information to any country for which the
United States government or any agency thereof at the time of export requires an
export license or other governmental approval, without first obtaining any
required consent or license to do so from the Department of Commerce or other
agency of the United States government when required by an applicable statute or
regulation.
ARTICLE IX
Term and Termination
9.1 Term. This Agreement shall commence on its Effective Date and unless
otherwise terminated earlier under this Article IX shall expire upon the
expiration of the last to expire Trega Patent Right, on a country-by-country
basis, covering the Licensed Products or their use in the Field.
9.2 Termination for Default
(a) If either party is in default of any of its material
obligations under this Agreement (a "Default") and fails to remedy that Default
within ninety (90) days after the other party sends written notice of the
Default, the party not in Default may terminate this Agreement immediately by
giving written notice of the termination subject to the arbitration provisions
in Section 10.1, provided, however, that if the party receiving such notice of
termination cures the breach or default or diligently commences to cure the same
within such ninety (90) day period, and actual cure may be reasonably
anticipated within sixty (60) days of such diligent commencement, this Agreement
shall continue in full force and effect. The termination date shall be the date
of the notice of termination. If the Default is by Trega, all licenses
9
<PAGE> 10
granted to Irori shall survive termination unless Irori elects to terminate such
licenses and all licenses granted to Trega by Irori hereunder shall terminate.
If Default is by Irori, all licenses granted by Trega hereunder to Irori shall
terminate.
(b) In addition to the actions permitted above, if Trega shall
Default in any of its obligations under this Agreement, Irori shall have the
option of notifying Trega of the Default and suspending Irori's performance of
its duties, including, without limitation, payment of royalties, as required
herein (but without suspending Irori's license rights and benefits hereunder).
Royalties shall not accrue during any such period of suspension. Irori's
oblation to pay royalties shall resume only after remedy by Trega of its
Default. Nothing herein shall limit Irori's rights to seek such other remedies
as may be available to it under this Agreement or otherwise by reason of any
such Default of Trega.
9.3 Voluntary Termination.
(a) At any time, and from time to time, upon thirty (30) days
notice, Irori may, in its sole discretion, terminate the sublicense granted
under this Agreement in an identified jurisdiction or jurisdictions or give
notice that it is terminating this Agreement by so notifying Trega. Such
termination shall be independent of any cause and shall engender no liability
other than those expressly stated in this Agreement. Any obligations of
confidentiality shall survive such termination.
(b) Trega may terminate this Agreement, upon fourteen (14) days
notice, if Irori has not paid any royalty when due to Trega or within the 14 day
notification period.
9.4 Continuing Confidentiality. Upon expiration or termination of this
Agreement, the obligations herein to maintain the confidentiality of information
shall continue in accordance herewith.
9.5 Survival of Obligations. Irori shall be liable to Trega for the
payment of any royalties under Article V accrued up to the date of termination.
Irori may complete its obligations under any outstanding orders for such sales
or leases as are in existence on the date of termination and it may, subject to
a continuing obligation to pay royalties to Trega, dispose of any inventory of
Licensed Products. Termination of this Agreement shall not affect any duty of
either party hereto existing prior to the effective date of termination and
which is, whether or not by its express terms, intended to survive termination.
Without limiting the generality of the foregoing, termination shall not affect
any, duty to retain confidential information submitted by one party to the other
hereunder, but rather such confidential information shall be held by the
receiving party subject to the restrictions an use and disclosure as are
provided herein. Royalty obligations shall survive termination of this Agreement
to the extent they relate to licenses granted hereunder which survive
termination.
ARTICLE X
Miscellaneous Provisions
10.1 Settlement of Disputes and Governing Laws. Trega and Irori shall
attempt to amicably resolve between themselves any dispute concerning any rights
or obligations of either party under this Agreement. If Trega and Irori fail to
resolve such dispute, the parties shall settle
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<PAGE> 11
the matter by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in the County of San Diego,
California, pursuant to the award of a panel of three arbitrators, and judgment
upon the award may be entered in any court having jurisdiction thereof. Each
party shall select an arbitrator and the two arbitrators in turn shall select a
third arbitrator. The fees and expenses of the arbitrators shall be shared
equally by Trega and Irori. This Agreement and any arbitration award shall be
governed by and construed and enforced in accordance with the substantive and
procedural laws of the State of California.
10.2 Notices. Any notice, report, or statement to either party required
under this Agreement shall be in writing and shall be deemed to be fully given
when mailed by certified or registered mail, return receipt requested, prepaid
and directed to the other party at its mailing address set forth below, or such
other mailing address as may be established by prior notice:
To Trega: Trega Biosciences, Inc.
9880 Campus Point Drive
San Diego, CA 92121
Attention: Chief Executive Officer
To Irori Irori
11149 North Torrey Pines Road
La Jolla, CA 92037
Attention: Vice President, Marketing and Sales
10.3 Headings. Headings of articles and sections of this Agreement are
for convenience only and the construction of this Agreement shall not be
affected by reference to such headings.
10.4 Severability of Provisions. When possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement. In such event, the Parties will make a good faith effort to
substitute a valid and enforceable provision therefor which, as nearly as
possible, achieves the desired economic effect and mutual understanding of the
Parties under this Agreement. If the designation of Excluded Parties in Section
2.1 hereof is held to be prohibited or invalid under applicable laws, Trega
shall have the right in its sole discretion to terminate without further
liability by either party except to the extent of obligations accrued through
the termination date.
10.5 Assignment. The license granted to Irori may be assigned in
connection with an acquisition by any unrelated party of all of the outstanding
securities of Irori or a sale of all or substantially all of its assets to an
unrelated party but not otherwise. In the event of any change of control of
Irori through the year 2003, Irori shall promptly pay Trega a fee of *** . A
change in control shall be deemed to have occurred if:
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
11
<PAGE> 12
(a) any Person (as hereinafter defined) who is not now, but
becomes the Beneficial Owner (as hereinafter defined), directly or indirectly,
of securities of Irori representing *** or more of the combined voting power
of Irori's then outstanding securities;
(b) the following individuals cease for any reason to constitute
a majority of the number of directors, then serving: individuals who, on the
date hereof, constitute the Board and any new director whose election or
appointment is approved by a vote of at least two-thirds of the shares voting in
such election or two-thirds of the directors still in office who were directors
on the date hereof or whose election or appointment would have satisfied the
conditions of this paragraph;
(c) the stockholders of Irori approve a plan of complete
liquidation or dissolution or there is consummated an agreement for the sale or
disposition by Irori of all or substantially all of the Company's assets, other
than a sale or disposition by Irori of all or substantially all of Irori's
assets to an entity, at least 60% of the combined voting power of the voting
securities of which are owned by stockholders of Irori in substantially the same
proportions as their ownership of immediately prior to the sale.
(d) for purposes hereof, (1) the term "Person" shall have the
meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) Irori or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of Irori or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by the stockholders of Irori
in substantially the same proportions as their ownership of stock of Irori; and
(2) the term "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
10.6 Most Favored Nations. If at any time during the term of this
Agreement Trega grants a license to Trega Technology in the Field to a third
party not as part of a collaboration, partnership or other transaction
encompassing more than a license of such Trega Technology upon financial terms
materially more favorable to such third party than those set forth herein, Trega
shall upon the effectiveness of such third party terms, reduce the financial
terms to Irori hereunder to be essentially equivalent as such third party terms.
Trega shall give Irori sixty days advance notice prior to granting such license
to Trega Technology on more favorable terms.
10.7 Complete Contract. This agreement contains the entire understanding
of the parties with respect to the subject matter hereof. This Agreement may be
modified or terminated only by a writing executed with the same degree of
formality as this Agreement.
10.8 Force Majeure. Both parties to this Agreement shall be excused from
the performance of their obligations under this Agreement if such performance is
prevented by force majeure, and such excuses shall be continued so long as the
condition constituting force majeure
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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<PAGE> 13
continues. For purposes of this Agreement, force majeure shall include
conditions beyond the control of the parties, including without limitation, an
act of God, voluntary or involuntary compliance with any regulation, law, or
order of any government, war, civil commotion, strike or other labor
disturbance, epidemic, failure or default of public utilities or common
carriers, destruction of production facilities or materials by fire, earthquake,
storm, or like catastrophe.
10.9 Warranty of Title. Trega hereby warrants that it has the right to
enter into this Agreement and to grant the licenses made the subject hereof,
subject to the consent of The Scripps Research, Institute, which is attached
hereto as Exhibit B.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their
signatures as of the day and year first written above.
TREGA BIOSCIENCES, INC. IRORI
By: /s/ Robert S. Whitehead By: /s/ Jack Fitzpatrick
------------------------------ --------------------------------
Name: Robert S. Whitehead Name: Jack Fitzpatrick
Title: Chairman and CEO Title: Chief Financial Officer
13
<PAGE> 14
EXHIBIT A
<PAGE> 15
1
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of April 11, 1985, by and between
SCRIPPS CLINIC AND RESEARCH FOUNDATION, a California nonprofit corporation
(hereinafter referred to as "SCRIPPS") and RICHARD A. HOUGHTEN (hereinafter
referred to as "HOUGHTEN"), with respect to the following:
RECITALS
WHEREAS, SCRIPPS, a nonprofit institution engaged in medical and
biomedical research, owns all rights to the means for sequential solid phase
organic synthesis and methods using the same, as well as that disclosed
Disclosure #84-35, and desires to grant an exclusive worldwide license to
HOUGHTEN to further develop, make, have made, use, sell and otherwise
commercially exploit these rights;
WHEREAS, SCRIPPS has determined that nonexclusive licensing of rights to
discoveries and developments will not be on a worldwide basis in a satisfactory
manner and that exclusive possession of the rights is necessary for proper
satisfaction of health care needs and commercial management of same;
WHEREAS, HOUGHTEN, in his capacity as an independent contractor, desires
to obtain such license from SCRIPPS to engage in such commercial development and
worldwide distribution of the means for sequential solid phase organic synthesis
and methods using the same, as well as that disclosed in Disclosure #84-35;
WHEREFORE, the parties hereto mutually agree as follows:
<PAGE> 16
2
1. DEFINITIONS
1.1 "Licensed Products" shall be that disclosed and clamed in
U.S. Patent Application No. 715,654 filed on March 25, 1985 entitled "Means for
Sequential Solid Phase Organic Syntheses and Methods Using the Same," as well as
that disclosed in Disclosure #85-35 submitted to the Research Institute of
Scripps Clinic on September 11, 1984, and know-how associated therewith.
1.2 "Net Sales" shall mean the gross revenue derived by HOUGHTEN
from any sale or Licensed Products, less discounts actually allowed, credits for
claims or allowances and returns, prepaid freight, and less taxes and other
governmental charges added to the face of the invoices and actually paid by
HOUGHTEN.
2. GRANT OF LICENSE
2.1 License. Subject to the reservation of rights in Paragraph
2.7 hereof, SCRIPPS hereby grants to HOUGHTEN an exclusive worldwide license to
further develop, make, have made, use, sell and otherwise commercially exploit
the Licensed Products.
2.2 Term. HOUGHTEN's license in any country shall be for the term
of each patent covering any of the Licensed Products in that country, or for a
term of twenty (20) years from the date of first commercial sale of said
Licensed Products in that country which is not covered by any patent in that
country, whichever is longer.
2.3 Due Diligence and Abandonment. HOUGHTEN agrees to use his
reasonable diligence and efforts to develop commercially and market the Licensed
Products. If at any time HOUGHTEN abandons his interest in pursuing commercial
development of the Licensed Products or if HOUGHTEN fails to use reasonable
diligence and efforts commercially to develop and market said Licensed Products,
then SCRIPPS may terminate HOUGHTEN's license as to said Licensed Products sixty
(60) days after so notifying HOUGHTEN, unless within a reasonable period of time
after receiving such notice HOUGHTEN reasonably satisfies
<PAGE> 17
3
SCRIPPS of his interest or diligent efforts, as the case may be, to commercially
develop and market the Licensed Products.
2.4 Sublicenses. Subject to the approval of SCRIPPS, which
approval shall not be unreasonably, withheld, HOUGHTEN shall have the right to
grant sublicenses to any third party with respect to any rights conferred upon
HOUGHTEN under this Agreement; provided, however, that any such sublicense shall
be subject in all respects to the same terms, conditions and provisions
contained in this Agreement, and shall expressly so provide. Such sublicensed
third parties shall thereafter report Net Sales to HOUGHTEN and HOUGHTEN shall
include the activities of such third parties in any reports made by HOUGHTEN to
SCRIPPS.
2.5 Termination Right. HOUGHTEN may terminate his license rights
in part or in whole under this Agreement and cease all further development,
manufacture and sale of any of the Licensed Products by giving SCRIPPS three (3)
months advance written notice of his Intentions to so terminate. Such
termination, however, shall not release HOUGHTEN from his obligations to pay
royalties accrued and unpaid for any sales of said Licensed Products prior to
the effective date of said notice and for all sales of said Licensed Products
which HOUGHTEN may make out of his existing inventories after the effective date
of said notice.
2.6 Effect of Termination. Upon any termination of this Agreement
prior to the scheduled expiration of the term for payment of royalties, HOUGHTEN
shall have no further rights under this Agreement to develop, manufacture, use,
sell, market or otherwise commercially exploit the Licensed Products; and upon
such a termination, HOUGHTEN shall promptly return to SCRIPPS all of SCRIPPS'
proprietary materials, including without limit all samples, reagents,
hybridomas, cell lines, monoclonals, documents and other information related to
the Licensed Products.
2.7 Reservation of Rights. Notwithstanding the foregoing, SCRIPPS
reserves the right to make and use the Licensed Products for SCRIPPS' own
education and research purposes, without SCRIPPS being obligated to pay any
royalties or other compensation related to
<PAGE> 18
4
same and without diminishing HOUGHTEN's obligations otherwise to pay royalties
to SCRIPPS.
3. ROYALTIES
3.1 Base Royalty Rate. For the term of this License Agreement,
HOUGHTEN shall pay to SCRIPPS a royalty of *** percent *** of Net Sales of the
Licensed Products, or where any sublicense is granted, *** percent (***) of
royalties derived by HOUGHTEN from all such sublicenses under Section 2.4, all
on a quarterly calendar basis.
3.2 (a) In countries where any patent is issued covering the Licensed
Products, the royalty rate for such country shall be as set forth in
Section 3.1.
(b) In countries where there is no issued patent covering the
Licensed Products, but a patent application is pending and where
HOUGHTEN sells the Licensed Products falling within the scope of the
claims of said patent application, the royalty rate shall be *** of the
rate set forth in Section 3.1 for a period not to exceed *** (***) years
from the priority filing date of said patent application. If a patent on
the Licensed Products is issued in such country during said *** (***)
year period, the royalty rate shall thereafter be as set forth in
Section 3.2(a). After said *** (***) year period if any royalties have
been paid under this subsection for such country, no further royalty
payments shall be made by HOUGHTEN to SCRIPPS for such country unless a
patent issues thereafter on said patent application. Upon such issuance,
the royalty rate shall be as set forth in Section 3.2(a).
(c) In countries where there is no patent covering the Licensed
Products and where there is no pending patent application or where a
pending patent application has exceeded a *** (***) year period based on
the priority filing date and no royalties have been paid thereon or
where a pending patent application is finally rejected and appellate
procedures are unsuccessfully exhausted or the time for perfecting any
further appeals has expired, the royalty rate when HOUGHTEN sells the
Licensed Products thereafter
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE> 19
5
shall be *** of the royalty established in Section 3.1, but no refund of
previously paid royalties shall be made. The payment of royalties under
this Subsection 3.2(c) shall not exceed a period of *** (***) years from
the date of first sale of the Licensed Products.
3.3 Reduction in Royalty Due to Competition. If in the Relevant Market
of any country HOUGHTEN's sales of the Licensed Products shall become subject to
substantial competition, the royalty provisions of subsection 3.2 for Licensed
Products in such country shall be superseded in favor of the royalty schedule
set forth hereinafter. As used herein the term, "Relevant Market" shall mean the
market within the affected country for comparable products which compete
directly with the affected Licensed Products. If HOUGHTEN's sales of such
Licensed Products for any *** (***) month period are *** percent (***) or
greater of such Relevant Market in the affected country, then there shall be no
change in the royalty rates set forth in subsection 3.2. If HOUGHTEN's sales of
such Licensed Products for any *** (***) month period are between *** percent
(***) and *** (***) of such Relevant Market, the royalty rates shall thereafter
be *** (***) of the royalty rates set forth in subsection 3.2 for so long as
such reduced market share continues. If HOUGHTEN's sales of such Products for
any *** (***) month period are between *** (***) and *** percent (***) of such
Relevant Market, the royalty rates shall thereafter be *** percent (***) of the
royalty rates set forth in subsection 3.2 for so long as such reduced market
share continues. If HOUGHTEN's sales of such Licensed Products for any *** (***)
month period are *** percent (***) or less of the Relevant Market, *** royalties
shall be due to SCRIPPS based on such sales in the affected country.
3.5 Governmental Prohibition. HOUGHTEN's obligation to pay royalties
under this Section 3 shall be waived and excused if the statutes, laws, codes or
government regulations of the country as to which such payments are to be paid
prohibit such payments.
3.6 Currency. The remittance of royalties payable on sales outside the
United States will be payable to SCRIPPS in United States dollar equivalents at
the official rate or exchange of the currency of the country from which the
royalties are payable as quoted by Citibank N.A. for the day upon which the
check for the royalty payment is dated. If the transfer or the conversion
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE> 20
6
into the remittance of United States dollar equivalents 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 sales were 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
HOUGHTEN's choice located in that country, prompt notice of which shall be given
by HOUGHTEN to SCRIPPS.
3.7 Tax Withheld. Any tax required to be withheld an royalties payable
to SCRIPPS under the laws of any foreign country shall be promptly paid by
HOUGHTEN for and an behalf of SCRIPPS to the appropriate governmental authority,
and HOUGHTEN shall furnish SCRIPPS with proof of payment of such tax together
with official or other appropriate evidence issued by the appropriate
governmental authority sufficient to enable SCRIPPS to support a claim for
income tax credit in respect of any sum so withheld. Any such tax required to be
withheld shall be an expense of and borne solely by SCRIPPS.
3.8 Records; Quarterly Payments. HOUGHTEN shall keep complete and
accurate records for the latest three (3) years of Net Sales with respect to
which royalty is payable according to this agreement. Within ninety (90) days
following each quarterly period of a calendar year for which royalties are due
under this Agreement, HOUGHTEN shall render to SCRIPPS a written report setting
forth the total Net Sales and the royalty due and payable, and HOUGHTEN shall,
upon rendering such report, remit to SCRIPPS the amount of royalty payments
shown thereby to be due. Any royalties not paid when due shall thereafter bear
interest at the prime rate of interest charged by Citibank N.A., compounded
daily.
3.9 Audit. SCRIPPS shall have the right at its own expense to nominate
an independent certified public accountant acceptable to and approved by
HOUGHTEN (which approval shall not be unreasonably withheld) who shall have
access to HOUGTEN's records during reasonable business hours for the sole
purpose of verifying the royalties payable as provided for in this Agreement,
but this right may not be exercised more than once in any
<PAGE> 21
7
calendar year, and said accountant shall disclose to SCRIPPS only information
relating solely to the accuracy of the royalty report and the royalty payments
made according to this Agreement.
4. PATENT APPLICATIONS.
4.1 U.S. Patent Application. SCRIPPS agrees to diligently
prepare, file, and prosecute patent applications in the United States covering
the Licensed Products to the extent SCRIPPS deems such applications to be
warranted or to the extent HOUGHTEN requests any such applications. Said
preparation, filing and prosecution shall be by an attorney of SCRIPPS'
choosing, subject to the approval of HOUGHTEN, said approval not to be
unreasonably withheld by HOUGHTEN.
4.2 Foreign Patent Application. SCRIPPS agrees, when requested in
writing by HOUGHTEN, to file patent applications by attorneys of SCRIPPS' own
choosing, subject to the approval of HOUGHTEN, said approval not to be
unreasonably withheld by HOUGHTEN, in countries outside the United States
corresponding to the patent applications filed by SCRIPPS in the United States.
4.3 Patent Costs. HOUGHTEN agrees to reimburse SCRIPPS for the
reasonable expenses incurred in preparing, filing and prosecuting applications
as set forth in Sections 4.1 and 4.2.
4.4 Credit on Royalties for Patent Costs. HOUGHTEN may deduct
from his royalty payments due to SCRIPPS under Section 3.2 of this Agreement,
any expenses incurred under Section 4.3 provided that expenses incurred in
relationship to subsection 4.1 shall be fully deducted first from any royalties;
and expenses incurred in relationship to Section 4.2 shall be fully deducted
from further royalties, provided, however, that HOUGHTEN may not deduct more
than *** percent *** of the remaining royalties due and owing in any calendar
quarter on any product as a result of Section 4.2 expenses.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE> 22
8
5. LITIGATION
5.1 HOUGHTEN's Right to Prosecute and Duty to Defend Actions.
HOUGHTEN shall have the sole right to prosecute at his discretion, any and all
infringements of any patents covering the Licensed Products or other actions and
agrees to defend, indemnify and hold harmless SCRIPPS and its employees and
trustees from all charges of infringement arising as a result of said patents
and all other actions, including product liability actions, all at his own
expense. Provided, however, that SCRIPPS shall permit any action to be brought
in its name if required by law, and SCRIPPS agrees to provide any assistance of
a technical nature that HOUGHTEN may require in any litigation arising in
accordance with the provisions of this subsection, for which SCRIPPS shall be
paid reasonable compensation. In the event HOUGHTEN elects not to prosecute any
such infringement or other action, HOUGHTEN shall notify SCRIPPS promptly, and
thereafter SCRIPPS shall have the right to prosecute such infringement or other
action.
5.2 Royalty Reduction. If as a result of litigation arising under
Section 5.1 or a result of other occurrences, HOUGHTEN pays a royalty to a third
party based on the sale of the Licensed Products, HOUGHTEN's royalty payments to
SCRIPPS shall be reduced by an equitable amount to be negotiated by the parties
at that time.
6. GOVERNMENTAL APPROVALS AND MARKETING OF PRODUCTS.
HOUGHTEN shall bear the costs of commercializing the Licensed
Products, including all costs of obtaining the necessary governmental approvals
for the marketing of such product. HOUGHTEN shall utilize reasonable efforts
within his sole discretion consistent with his overall business strategy in
obtaining said governmental approvals and marketing said product.
<PAGE> 23
9
7. WARRANTIES.
SCRIPPS warrants and represents that it has the full right, title
and power to grant the license set forth in this Agreement, and that there are
no outstanding agreements, assignments claims or encumbrances applicable to
SCRIPPS which are inconsistent with the provisions of this Agreement. SCRIPPS
makes no expressed or implied warranty as to merchantability or fitness for any
particular purpose as to the Licensed Products.
HOUGHTEN warrants and represents that he is not bound by any
agreement to any other party, including without limit any present or previous
employer or partner which precludes him from entering into or performing the
Agreement or which would be violated or infringed upon by entering into or
performing this Agreement.
8. COMMUNICATIONS
Any payment, notice or other communications required or permitted
to be made or given to either party hereto pursuant to this Agreement shall be
sufficiently made or given on the date of mailing if sent to such party by
certified or registered mail, postage prepaid, addressed to it at its address
set forth or to such other address as its shall designate by written notice
given to the other party as follows:
In the case of SCRIPPS:
Associate Director of the Research Institute
of Scripps Clinic
Scripps Clinic and Research Foundation
10666 North Torrey Pines Road
La Jolla, California 92037
In the case of HOUGHTEN:
Richard A. Houghten, Ph.D.
558 Ford Avenue
Solana Beach, CA 92075
<PAGE> 24
10
9. ASSIGNMENT
This Agreement shall not be assignable by either party without
the prior written consent of the other party, except to a successor in ownership
of all or substantially all of the business assets of a party hereto, and which
successor shall expressly assume in writing the performance of all the terms and
conditions of this Agreement to be performed by the assigning party.
10. PUBLICATION; CONFIDENTIALITY
10.1 Publications. With respect to reporting results of research
and development relating to the Licensed Products, SCRIPPS will submit to
HOUGHTEN drafts of all proposed publications relating to said product at the
earliest possible date, but in any event not less than thirty (30) days prior to
the submission of said proposed publications; and HOUGHTEN shall advise SCRIPPS
as to the patentability of any inventions disclosed therein. At the end of such
thirty (30) day period, SCRIPPS shall have the right, at its sole discretion, to
submit such proposed publications for publication, but HOUGHTEN reserves the
right to request that his name not be used in connection with said publications.
10.2 Publicity. Neither party will originate any publicity, news
release, or other public announcement, written or oral, whether to the public
press, to stockholders, or otherwise, relating to this agreement, to any
amendment hereto or to performance hereunder or the existence of an arrangement
between the parties without the prior written approval of the either party.
10.3 SCRIPPS Confidentiality. SCRIPPS shall not disclose to
others or use for its own benefit any confidential information acquired from
HOUGHTEN concerning existing or contemplated products, processes, techniques,
know-how, marketing information or the like obtained as a result of any
provisions of this Agreement or the relationship established hereunder. This
covenant shall not be applicable to information which at the time of the
<PAGE> 25
11
disclosure or use is in the public domain. The obligations of confidentiality
under this Section 10 shall survive any expiration or termination of this
Agreement.
10.4 HOUGHTEN Confidentiality. Maintain the confidentiality of
SCRIPPS' trade secrets and proprietary information and materials which SCRIPPS
furnishes to HOUGHTEN in connection with the Licensed Products, to the extent
such confidentiality does not interfere with the full commercialization of the
Licensed Products. The obligations of confidentiality under this Section 10.4
shall survive any expiration or termination of this Agreement.
10.5 Exchange of Information. Consistent with the provisions of
this Agreement and to the extent permitted by law and legal obligations
respecting confidential information of third parties, SCRIPPS and HOUGHTEN shall
promptly exchange any newly acquired or developed information relating to the
Licensed Products.
11. GENERAL
11.1 Signatures. This Agreement will not be binding upon the
parties until it has been signed hereinbelow by or on behalf of each party, in
which event it shall be effective as of the date first above written. No
amendment or modification hereof shall be valid or binding upon the parties
unless made in writing and signed as aforesaid.
11.2 Entirety. This Agreement embodies the entire understanding
of the parties with respect to the license for the Licensed Products, and shall
supersede all previous communications, representations or undertakings, either
verbal or written, between the parties relating to the subject matter hereof.
11.3 Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
11.4 Governing Law. This Agreement shall be construed, and the
legal relations between the parties determined, in accordance with the laws of
the State of California.
<PAGE> 26
12
11.5 U.S. Manufacture. To the extent required by applicable laws
or governmental regulations, HOUGHTEN agrees that the Licensed Products will be
manufactured substantially in the United States, subject to such waivers as may
be obtained from the U.S. Department of Health and Human Services, or its
designee.
11.6 Headings. The headings of the several Sections are inserted
for convenience and reference only, and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF; the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SCRIPPS CLINIC AND RESEARCH FOUNDATION
Witness: By: /s/ Raymond H. Kahn
-------------------------------------
/s/ Illegible Title: Associate Director
- ----------------------------
RICHARD A. HOUGHTEN
Witness:
/s/ Illegible /s/ Richard A. Houghten
- ---------------------------- -----------------------------------------
<PAGE> 27
EXHIBIT B
<PAGE> 28
EXHIBIT B
ACKNOWLEDGEMENT
The Scripps Research Institute hereby acknowledges, agrees and consents to the
granting of a non-exclusive, world-wide license of Disclosure #84-35 and Untied
States patent 4,631,211 by Trega Biosciences, Inc. to Irori with the right to
grant sublicenses as set forth in that certain sublicense agreement attached as
Exhibit A to the letter to which this acknowledgment is attached.
The Scripps Research Institute
By: /s/ Arnold Laguardia
----------------------------------
Title: Senior Vice President
-------------------------------
Date: 5/13/98
--------------------------------
<PAGE> 1
EXHIBIT 10.38
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into as
of the date last written below, by and between IRORI ("IRORI") and SOKYMAT, S.A.
("Sokymat") (collectively, IRORI and Sokymat shall be referenced as the
"Parties").
RECITALS
WHEREAS, the Parties are defendants in Trovan, Ltd. et al. y. Sokymat,
S.A. et al., United States District Court for the Central District of California
Case No. CV 97-4585 MRP (AJWx), filed on or about June 23, 1997, (the "Action");
WHEREAS, Plaintiffs allege in the Action, among other things, that IRORI
is liable for patent infringement as a result of IRORI's sale and/or
distribution of product manufactured by Sokymat;
WHEREAS, IRORI desires to have Sokymat defend, indemnify and hold IRORI
harmless to the full extent allowable by law is connection with the facts,
circumstances and patent infringement (or infringement related) claims asserted
in the Action in connection with U.S. Patent 5,281,855 (the "'855 Patent") and
U.S. Patent 5,572, 410 (the "'410 Patent"); and
WHEREAS, Sokymat is willing to defend, indemnify and hold IRORI harmless
to the full extent allowable by law in connection with the facts, circumstances
and patent infringement (or infringement related) claims asserted in the Action
in connection with the `855 Patent and `410 Patent on the condition that Sokymat
be allowed to control IRORI's defense and settlement of the action.
AGREEMENT
NOW, THEREFORE, in consideration of these promises and covenants
contained herein it is hereby agreed by and between the parties hereto as
follows:
1. Sokymat shall indemnify, defend and hold IRORI harmless to the full
extent allowable by law in connection with the facts, circumstances and patent
infringement (or infringement-related) claims asserted in the Action in
connection with the `855 Patent and the `410 Patent, including without
limitation and to the full extent allowable indemnifying, defending and holding
IRORI harmless against any and all liabilities, demands, causes of action,
costs, expenses, attorneys' fees, damages, exemplary awards (such as double or
treble damages or attorneys' fees awards), settlements and obligations of every
kind and nature, at law, in equity or otherwise (collectively, the "Indemnified
Claims").
2. This Agreement shall not provide indemnification in connection with
the Action against any acts which cannot by law be indemnified, such as: (a)
acts done by IRORI prior to the effective date of this Agreement which
constitute a felony (California Civil Code section 2774); or (b) acts done by
IRORI after the effective date of this Agreement if known by IRORI to be
unlawful at the time of doing such acts (California Civil Code section 2773). To
the extent that there is a final binding determination in the Action that IRORI
committed any acts which cannot by law be indemnified, this Agreement shall not
cover such acts; however, in such case
<PAGE> 2
IRORI shall still be entitled pursuant to this Agreement to be indemnified,
defended and held harmless by Sokymat to the full extent allowable by law in
connection with in the Action.
3. Sokymat shall control the defense of IRORI in the Action. Sokymat
shall bear all fees and expenses incurred by Sokymat in connection with
investigating, preparing to defend, or defending IRORI in connection with the
Action. IRORI shall have the right to participate in its defense in connection
with the Action, including without limitation the right to employ separate
counsel at IRORI's expense; provided, however, that control over final decision
making shall remain with Sokymat. IRORI shall have the right to review all court
filings, correspondence, discovery, deposition transcripts, and other documents
related to Sokymat's defense of IRORI in connection with the Action and all such
documents shall be provided to IRORI by Sokymat at Sokymat's expense.
4. IRORI agrees to provide to Sokymat all information within IRORI's
possession, custody, or control which is requested by Sokymat in connection with
the investigating, preparing to defend or defending the Action and any other
assistance that may be reasonably required in connection with the investigating,
preparing to defend or defending IRORI in connection with the Action.
5. The Parties agree to take such other and further steps as may be
necessary or appropriate to assure that the intent of this Agreement is
effectuated.
6. Each Party specifically denies the claims asserted in the Action.
This Agreement is not intended to reflect in any way either the merits of any of
those claims or that there has been any wrongdoing by any Party, and is intended
to facilitate the defense of the Action while assuring that IRORI is
indemnified, defended and held harmless in connection therewith. The promises in
this Agreement shall not be construed to be an admission of any liability or
obligation whatsoever by any Party to any other Party to this Agreement or to
any other person whomsoever.
7. This Agreement, any drafts thereof, and any related documents are
intended to be confidential, to facilitate the common defense of the Parties,
and to be subject to the Parties' joint defense agreement set forth in the
letter dated September 26, 1997 addressed to Michael R. Adele, Esq., and
executed by counsel for the Parties.
8. The only representations and warranties on which the Parties have
relied in entering this Agreement are those set forth in writing within this
Agreement.
9. It is the intention of the Parties, through this Agreement, that
Sokymat indemnify, defend and hold IRORI harmless to the greatest extent
allowable by law, and that all provisions herein be construed and enforced in
accordance with that intention. This Agreement is not intended to provide
indemnification against acts which cannot by law be the enforceable subject of
an indemnification agreement, such as: (a) acts done by IRORI prior to the
effective date of this Agreement which constitute a felony (California Civil
Code section 2774); or (b) acts done by IRORI after the effective date of this
Agreement if known by IRORI to be unlawful at the time of doing such acts
(California Civil Code section 2773).
2
<PAGE> 3
10. The Parties acknowledge that each of the Parties have participated
in the drafting and negotiation of this Agreement. For purposes of interpreting
this Agreement, each provision, paragraph, sentence and word herein shall be
deemed to have been jointly drafted by the Parties. The Parties intend for this
Agreement to be construed and interpreted neutrally in accordance with the plain
meaning of the language contained herein, and not presumptively construed
against any actual or purported drafter of any specific language contained
herein.
11. This Agreement shall bind the successors and assigns of each Party,
and inure to the benefit of each Party, its agents, directors, officers,
employees, attorneys, successors and assigns.
12. The Agreement contains the entire agreement between the Parties
hereto and constitutes the complete, final and exclusive embodiment of their
agreement with respect to the subject matter hereof. All prior or
contemporaneous agreements, understandings, representations and statements, oral
or written, are merged into and superseded by this Agreement. No claimed
additions to or modifications or amendments of this Agreement, nor any claimed
waiver of any of its terms or conditions, shall be effective unless in writing
and signed by the Party against whom the same may be asserted.
13. This Agreement shall be deemed to have been entered into, and shall
be construed and enforced, in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely in
California.
14. With regard to enforcement of this Agreement, the Parties consent to
the jurisdiction of the state of federal courts of California, which the Parties
agree shall constitute the exclusive forum for enforcement of this Agreement;
provided, however, that any judgment rendered by a California court may be
enforced outside of California resort to whatever court or tribunal may be
necessary or appropriate.
15. If any term, clause or provision in this Agreement shall be found to
be unenforceable, that term, clause or provision shall be struck and all
remaining terms, clauses and provisions of the Agreement shall be valid and
enforceable.
16. Whenever the text hereof requires, the use of the singular noun
shall include the appropriate plural noun and vice-versa.
17. Any statements, communications or notices to be provided pursuant to
this Agreement shall be sent in writing to the attention of the persons
indicated below, until such time as notice of any change of person to be
notified or change of address is forwarded to all Parties:
SOKYMAT, S.A.:
James A. Oliff, Esq.
Oliff & Berridge
700 South Washington Street
Alexandria, VA 22314
Facsimile: (703) 836-2787
3
<PAGE> 4
IRORI:
Michael R. Adele, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Facsimile: (619) 453-3555
18. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF the Parties have duly authorized and caused this
Agreement to be executed on the date set forth below.
ACCEPTED AND AGREED BY:
Sokymat S.A.
Dated: April 19, 1999 /s/ Herbert Thyssen
---------------------------- ----------------------------
By: Herbert Thyssen
Its: Managing Director
IRORI
Dated: April 19, 1999 /s/ Jack Fitzpatrick
---------------------------- ----------------------------
By: Jack Fitzpatrick
Its: CFO
4
<PAGE> 1
EXHIBIT 10.39
STRATEGIC ALLIANCE AGREEMENT
BETWEEN
BRISTOL-MYERS SQUIBB COMPANY
AND
IRORI
DATED AS OF MAY 22, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS.........................................................................1
1.1 "Acceptance Date"............................................................1
1.2 "Affiliate"..................................................................1
1.3 "BMS Resins".................................................................2
1.4 "Development Committee"......................................................2
1.5 "Development Milestone"......................................................2
1.6 "Effective Date".............................................................2
1.7 "Enhancement"................................................................2
1.8 "Enhancement Specifications".................................................2
1.9 "Facility"...................................................................2
1.10 "Initial Delivery Deadline"..................................................2
1.11 "NanoKan"....................................................................2
1.12 "NanoKan Specifications".....................................................3
1.13 "Party"......................................................................3
1.14 "Purchase Price".............................................................3
1.15 "Right and License"..........................................................3
1.16 "Software"...................................................................3
1.17 "System".....................................................................3
1.18 "System Specifications"......................................................3
1.19 "Third Party"................................................................3
1.20 "Update".....................................................................3
2. MANUFACTURE; DELIVERY; OPTION.......................................................3
2.1 Generally....................................................................4
2.2 Satisfaction of Development Milestones, etc.; Acceptance; Rejection..........4
2.3 Delivery; Installation.......................................................5
2.4 Identification; Passage of Title.............................................5
2.5 Option to Purchase Additional System.........................................5
3. DEVELOPMENT COMMITTEE...............................................................7
3.1 Members......................................................................7
3.2 Responsibilities.............................................................7
3.3 Meetings.....................................................................7
3.4 Decisions....................................................................8
3.5 Term.........................................................................8
3.6 Expenses.....................................................................8
4. INITIAL SYSTEM PURCHASE PRICE; PAYMENT..............................................8
4.1 Initial System Purchase Price................................................8
4.2 Payment Schedule.............................................................9
4.3 Mode of Payment; Taxes.......................................................9
5. INTELLECTUAL PROPERTY; UPDATES......................................................9
5.1 Invention Ownership..........................................................9
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.2 Title Does Not Pass; Right and License.......................................9
5.3 Updates.....................................................................10
5.4 Enhancements................................................................10
5.5 Installation................................................................11
5.6 Source Code.................................................................11
6. SUPPORT; TRAINING..................................................................12
6.1 Support and Maintenance.....................................................12
6.2 Training....................................................................12
7. SUPPLY AND PURCHASE................................................................12
7.1 Initial Obligations.........................................................12
7.2 Requirements................................................................13
7.3 Orders......................................................................13
7.4 Delivery....................................................................13
7.5 Quality Control.............................................................14
7.6 Acceptance; Rejection.......................................................14
7.7 Interim Replacement.........................................................14
7.8 Replacement of BMS Resins...................................................15
7.9 Invoicing; Payment..........................................................15
7.10 Allocation..................................................................15
7.11 Right to Manufacture........................................................16
7.12 BMS's Right to Manufacture..................................................16
8. REPRESENTATIONS AND WARRANTIES; COVENANTS..........................................16
8.1 Representations and Warranties of Both Parties..............................16
8.2 Representations and Warranties of IRORI.....................................17
8.3 Limited Right of Repair.....................................................17
8.4 Disclaimer of Warranty......................................................18
8.5 Covenants of BMS............................................................18
9. THIRD PARTIES......................................................................18
9.1 Semi-Exclusivity............................................................18
9.2 Most Favored Nation.........................................................18
9.3 Audit Request...............................................................19
10. INDEMNIFICATION....................................................................19
10.1 Obligation to Indemnify.....................................................20
10.2 Notice......................................................................20
10.3 Complete Indemnification....................................................20
10.4 Insurance...................................................................20
10.5 Partial Limitation on IRORI Indemnity.......................................20
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
11. CONFIDENTIALITY....................................................................21
11.1 Confidential Information....................................................21
11.2 Permitted Disclosures.......................................................21
11.3 Remedies....................................................................21
12. TERM; TERMINATION..................................................................22
12.1 Term........................................................................22
12.2 Termination by BMS..........................................................22
12.3 Breach......................................................................22
12.4 Effect of Termination.......................................................23
12.5 Accrued Rights, Surviving Obligations.......................................23
13. FORCE MAJEURE......................................................................24
13.1 Events of Force Majeure.....................................................24
14. MISCELLANEOUS......................................................................24
14.1 Non-Solicitation............................................................24
14.2 Relationship of Parties.....................................................24
14.3 Assignment..................................................................25
14.4 Binding Effect..............................................................25
14.5 Further Actions.............................................................25
14.6 Costs and Expenses..........................................................25
14.7 Inconsistency...............................................................25
14.8 Notice......................................................................26
14.9 Use of Name.................................................................26
14.10 Public Announcements........................................................26
14.11 Waiver......................................................................27
14.12 Severability................................................................27
14.13 Amendment...................................................................27
14.14 Governing Law...............................................................27
14.15 Arbitration.................................................................27
14.16 Limitation on Liability.....................................................28
14.17 Entire Agreement............................................................28
14.18 Counterparts................................................................28
14.19 Descriptive Headings........................................................28
</TABLE>
EXHIBITS
EXHIBIT A SYSTEM AND NANOKAN SPECIFICATIONS AND MILESTONES
EXHIBIT B PROGRESS PAYMENT SCHEDULE
EXHIBIT C DESCRIPTION OF INSURANCE COVERAGE
iii
<PAGE> 5
STRATEGIC ALLIANCE AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT (this "Agreement") dated as of May 22,
1998 by and between Bristol-Myers Squibb Company, a corporation duly organized
and existing under the laws of the State of Delaware, having offices at P.O. Box
4000, Route 206 and Province Line Road, Princeton, New Jersey 08543-4000, for
and on behalf of itself and its Affiliates ("BMS"), and IRORI, a corporation
duly organized and existing under the laws of the State of California, having
offices at 11149 North Torrey Pines Road, La Jolla, California 92037-1030
("IRORI").
PRELIMINARY STATEMENTS
A. BMS is a pharmaceutical company that engages in the discovery and
development of new drug products.
B. IRORI has developed directed sorting combinatorial chemistry systems
that use microreactors and miniature electronic tags.
C. BMS wishes to purchase from IRORI and secure a license from IRORI
with respect to, and IRORI wishes to manufacture and sell to BMS and grant a
license to BMS with respect to, a System, upon the terms and conditions set
forth in this Agreement.
D. In addition, BMS wishes to purchase from IRORI, and IRORI wishes to
sell to BMS, a quantity of NanoKans, also upon the terms and conditions set
forth in this Agreement.
E. In conjunction with the execution of this Agreement, the Parties are
entering into that certain Series D Preferred Stock Purchase Agreement, dated as
of the Effective Date (the "Stock Purchase Agreement"), and such other
agreements as are contemplated thereby.
NOW, THEREFORE, in consideration of the foregoing Preliminary Statements
and the mutual covenants and agreements of the Parties contained in this
Agreement, the Parties agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms will have those meanings
set forth in this Section 1 unless the context dictates otherwise.
1.1 "Acceptance Date" shall mean, with respect to a System or an
Enhancement, the date on which BMS accepts such System or Enhancement in
accordance with Section 2.2 or 5.4, as the case may be.
1.2 "Affiliate", with respect to any party, shall mean any entity
controlling, controlled by, or under common control with, such Party (but only
so long as such control relationship exists). For these purposes, "control"
shall refer to (i) the possession, directly or indirectly, of the power to
direct the management or policies of an entity, whether through the ownership of
voting
<PAGE> 6
securities, by contract or otherwise or (ii) the ownership, directly or
indirectly, of at least 50% of the voting securities or other ownership interest
of an entity.
1.3 "BMS Resins" shall have the meaning assigned thereto in Section
7.1(b).
1.4 "Development Committee" shall have the meaning assigned thereto in
Section 3.1.
1.5 "Development Milestone" shall mean each of the milestones set forth
on Exhibit A attached.
1.6 "Effective Date" shall mean the date first written above.
1.7 "Enhancement" shall mean any upgrade or improvement to the System
that materially improves its utility, efficiency or efficacy and that is not
primarily intended to correct or avoid errors, malfunctions or defects in the
System.
1.8 "Enhancement Specifications" shall mean, with respect to any
Enhancement, written specifications that set forth with specificity the quality
and degree of improvement to the System that such Enhancement provides.
1.9 "Facility" shall mean a facility in the continental United States
selected by BMS at its sole discretion pursuant to Section 2.3.
1.10 "Initial Delivery Deadline"shall mean *** .
1.11 "NanoKan" shall mean IRORI's proprietary microreactor for solid
phase synthesis that conforms to the NanoKan Specifications.
1.12 "NanoKan Specifications" shall mean the specifications set forth in
Exhibit A attached which relate to NanoKans (including, without limitation, the
percentage of BMS Resins supplied to IRORI for incorporation into a shipment(s)
of NanoKans that actually is incorporated into such shipment(s)), as may be
amended by the Development Committee from time to time.
1.13 "Party" shall mean BMS or IRORI and, when used in the plural, shall
mean BMS and IRORI.
1.14 "Purchase Price" shall mean the Initial System Purchase Price (as
such term is defined in Section 4.1), the Second System Purchase Price (as such
term as defined in Section 2.5) and the Enhancement Purchase Price(s) (as such
term is defined in Section 5.4), either individually or collectively, as context
dictates.
1.15 "Right and License" shall have the meaning assigned thereto in
Section 5.2.
1.16 "Software" shall mean all of the software adapted or incorporated
into the system from time to time.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
2
<PAGE> 7
1.17 "System" shall mean IRORI's proprietary NanoKan Reactor System,
including all hardware, equipment, Software and other components and any Updates
or Enhancements provided to BMS pursuant to Section 5.3 or 5.4. Except to the
extent context dictates otherwise, "System" shall include both the Initial
System (as defined in Section 2.1) and the Second System (as defined in Section
2.5).
1.18 "System Specifications" shall mean the specifications set forth on
Exhibit A attached relating to the System, as may be amended by the Development
Committee from time to time.
1.19 "Third Party" shall mean any Person who or which is neither a Party
nor an Affiliate of a Party.
1.20 "Update" shall mean with any update, upgrade or improvement to the
System other than Enhancements.
2. MANUFACTURE; DELIVERY; OPTION.
2.1 Generally. On or before the Initial Delivery Deadline, IRORI shall
manufacture, deliver and install at the Facility, in accordance with the System
Specifications and the terms of this Agreement, one System (the "Initial
System"). During the period between the Effective Date and the date on which the
initial System is delivered to the Facility, IRORI shall use its best commercial
efforts to diligently fulfill its obligations under this Agreement and to
satisfy each Development Milestone in a timely and expeditious manner and by the
target completion date set forth on Exhibit A with respect to such Development
Milestone.
2.2 Satisfaction of Development Milestones, etc.; Acceptance; Rejection.
(a) (i) IRORI shall give BMS notice promptly after IRORI believes
that it has satisfied each Development Milestone with respect to the Initial
System. For a period of *** (a "Testing Period") after the date of each such
notice, BMS shall have the right to test the Initial System, as it then exists,
at IRORI's site to verify that such Development Milestone has been satisfied
(using the Development Milestone Criteria). BMS shall use reasonable efforts to
expedite the performance of such testing.
(ii) If, prior to the expiration of any Testing Period,
BMS fails to notify IRORI that such Development Milestone has not been
satisfied, then such Development Milestone shall be deemed to have been
satisfied.
(iii) If such testing indicates that such Development
Milestone has not been satisfied, then prior to the expiration of the Testing
Period, BMS shall notify IRORI of such non-satisfaction in sufficient detail to
allow IRORI to attempt to remedy it. During the *** period following receipt
of any such notice, IRORI shall use its best commercial efforts to satisfy such
Development Milestone. If BMS reasonably determines, within *** after such ***
period, that such Development Milestone still has not been satisfied, then BMS
shall he excused
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temporarily from its obligation to make the payment of the Initial System
Purchase Price that pertains to such Development Milestone under Section 4.2,
until such Development Milestone has been achieved. If BMS fails to notify IRORI
that such Development Milestone has not been satisfied prior to the expiration
of such *** period, then such Development Milestone shall be deemed to have
been satisfied.
(b) (i) On or before the Initial Delivery Deadline, IRORI shall
manufacture the Initial System and have it ready at IRORI's factory for testing
pursuant to this Section 2.2(b), IRORI shall give BMS notice (a "Readiness
Notice") promptly after IRORI believes that the Initial System has been
completed and is ready for delivery. BMS shall have the right, as promptly as
possible after the date of each Readiness Notice, and in any event not more than
*** after the date of such notice, to test the Initial System to verify that the
Initial System conforms to the System Specifications (using testing protocols
developed by the Development Committee).
(ii) If, prior to the expiration of such *** period, BMS
fails to notify IRORI that the Initial System does not conform to the System
Specifications, then the Initial System shall be deemed to conform to the System
Specifications, and BMS shall be deemed to have accepted the Initial System.
(iii) If such testing indicates that the Initial System
does not conform to the System Specifications, then prior to the expiration of
such *** period, BMS shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Initial System into conformity with the System Specifications. If BMS
reasonably determines, within *** after such *** period, that the Initial
System still does not conform to the System Specifications, then BMS shall be
entitled to reject the Initial System by notice to IRORI, in addition to any
other rights BMS may have under this Agreement, at law or in equity. If BMS
fails to notify IRORI that the Initial System does not conform to the System
Specifications prior to the expiration of such *** period; then the Initial
System shall be deemed to conform to the System Specifications, and BMS shall be
deemed to have accepted the Initial System.
(c) Notwithstanding Section 14.15, any dispute arising between
the Parties as to whether a Development Milestone has been satisfied or the
Initial System conforms to the System Specifications shall finally be determined
by the Development Committee in accordance with Section 3.4.
2.3 Delivery; Installation.
(a) Within *** after BMS's receiving a Readiness Notice with
respect to the Initial System, BMS shall notify IRORI of the location of the
Facility and of any special delivery instructions. The Parties shall cooperate
in coordinating the delivery and installation of the
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Initial System at the Facility. IRORI shall install the Initial System at the
Facility in accordance with BMS's reasonable instructions and the System
Specifications.
(b) BMS shall have the right, as promptly as possible after
installation of the Initial System but in any event not more than *** after
IRORI's installation of the initial System at the Facility, to verify that the
Initial System continues to conform to the System Specifications. To the extent
it does not, IRORI shall promptly bring the Initial System into such conformity.
2.4 Identification; Passage of Title. The Initial System shall be
identified to this Agreement as of the Effective Date. IRORI shall bear the risk
of any loss, deterioration or damage until the Initial System has been delivered
and installed at the Facility in accordance with the term of this Agreement.
Except as provided in Section 5.2, title to the Initial System shall pass to BMS
upon delivery and installation of the Initial System at the Facility in
accordance with the terms of this Agreement.
2.5 Option to Purchase Additional System.
(a) At any time prior to *** *** , BMS shall have an option
to purchase a second System (the "Second System"). The total purchase price (the
"Second System Purchase Puce") payable by BMS in consideration of IRORI's
manufacture, delivery and installation of the Second System by IRORI, and the
Right and License with respect to the Second System that will be effective upon
the Acceptance Date with respect thereto, shall be *** ; provided, however,
that if the Acceptance Date with respect to the Second System is delayed more
than *** (such period, as may be extended as provided below, the "Grace
Period") after the Second Delivery Deadline (as defined herein), the Second
System Purchase Price shall be reduced by *** (calculated without regard to
any previous reductions) for each *** (of portion thereof) that such
Acceptance Date is delayed beyond the Grace Period, except to the extent that
BMS causes any such delay. The Parties acknowledge and agree that BMS's testing
of the Second System in accordance with Section 2.2 shall not constitute delay.
If the Grace Period has not expired at the time IRORI sends a Readiness Notice
with respect to the Second System, then the Grace Period shall be extended (or,
as the case may be, any period of delay of the Acceptance Date with respect to
the Second System beyond the expiration of the Grace Period shall be tolled),
day-for-day, for each day that elapses between BMS's receipt of any Readiness
Notice and completion of BMS's inspection of the Second System pursuant to
Section 2.2(b)(i) (as such Section relates to the Second System pursuant to
Section 2.5(d)). BMS shall notify IRORI Promptly of the completion of any such
inspection.
(b) BMS may exercise such option by delivering a notice (the
"Option Exercise Notice") to IRORI. The Option Exercise Notice shall set forth
the date on which BMS expects IRORI to deliver a Readiness Notice with respect
to the Second System (the "Second Delivery Deadline"), which shall not be sooner
than *** ***
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*** Following receipt of an Option Exercise Notice, IRORI shall use its best
commercial efforts to diligently manufacture, deliver and install the Second
System in a timely and expeditious manner. The Second System shall be identified
to this Agreement as of the date of the Option Exercise Notice.
(c) BMS shall pay the Second System Purchase Price according to
the following schedule:
(i) *** shall be paid in conjunction with delivery of
the Option Exercise Notice;
(ii) *** shall be paid within 45 days after the
Acceptance Date with respect to the Second System; and
(iii) *** shall be paid within 45 days after BMS's
verification, pursuant to Section 2.3(b), that the Second System conforms to the
System Specifications.
In the event that BMS rejects the Second System pursuant to Section 2.2(b)(iii),
BMS shall be excused from making any further payment of the Second System
Purchase Price.
(d) Except as expressly set forth in this Section 2.5, Sections
2.2(b), 2.3 and 2.4 shall apply to IRORI's manufacture, delivery and
installation of the Second System as well as to its manufacture, delivery and
installation of the Initial System; provided, however, that the *** periods
referred to in Sections 2.2(b) and 2.3(b) shall be reduced to *** with
respect to the Second System, so long as IRORI shall have given BMS at least ***
prior notice as to the date on which the Readiness Notice with respect to the
Second System will be delivered.
3. DEVELOPMENT COMMITTEE.
3.1 Members. The Parties shall establish the Development Committee (the
"Development Committee"), which shall be comprised of six members, three
representatives designated by each Party. Members of the Development Committee
may be represented at any meeting by a designee appointed by such member for
such meeting. The chairperson of the Development Committee shall be designated
annually on an alternating basis between the Parties. The initial chairperson
shall be selected by BMS. The Party not designating the chairperson shall
designate one of its representative members as secretary to the Development
Committee for such year. Each Party shall be free to change its representative
members, on notice to the other Party.
3.2 Responsibilities. The Development Committee shall be responsible
for:
(a) developing, reviewing and modifying, from time to time,
testing protocols for all Systems and Enhancements;
(b) reviewing and modifying, from time to time, the System
Specifications, Enhancement Specifications and NanoKan Specifications;
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(c) developing, reviewing and modifying, from time to time,
criteria (the "Development Milestone Criteria") for determining whether each of
the Development Milestones has been satisfied; and
(d) overseeing the testing of all Systems prior to the delivery
thereof.
The Development Committee shall use its best efforts to develop the testing
protocols for the Initial System and the Development Milestone Criteria not
later than 90 days after the Effective Date.
3.3 Meetings. The Development Committee shall meet at such times and in
such places as the Parties shall agree. Meetings may also be called by either
Party, on 10 days' written notice to the other unless such notice is waived by
the Parties. The meetings shall alternate between the offices of the Parties
unless the Parties otherwise agree. The chairperson shall be responsible for
sending notices of meetings to all members. The Development Committee may also
convene or be polled or consulted from time to time by means of
telecommunications, video conferences or correspondence, as deemed necessary or
appropriate.
3.4 Decisions.
(a) All decisions of the Development Committee shall be made by
unanimous agreement of the members (or their designees) present in person or by
telephone at any meeting, provided that at least one representative of each
Party is present at such meeting.
(b) In the event that unanimity cannot be reached by the
Development Committee with respect to a matter that is subject to its
decision-making authority, then the matter shall be referred for further review
and resolution to the Vice President, Chemistry, at BMS, or such other similar
position designated by BMS from time to time, and the Vice President, Business
Development, at IRORI, or such other similar position designated by IRORI from
time to time. Such designated officers of each Party shall use reasonable
efforts to resolve the matter within 30 days after the matter is referred to
them. If they cannot resolve the matter within 30 days, the matter shall be
referred for further review and resolution to the President of BMS's
Pharmaceutical Research Institute, or such other similar position designated by
BMS from time to time, and IRORI's Chief Executive Officer, or such other
similar position designated by IRORI from time to time. Such designated officers
of each Party shall use reasonable efforts to resolve the matter within 30 days
after the matter is referred to them. If they cannot resolve the matter within
30 days, then the matter shall be decided by the President of BMS's
Pharmaceutical Research Institute, or such other similar position designated by
BMS from time to time, in good faith, giving appropriate consideration to the
reasonable business, scientific and technical feasibility concerns of IRORI.
(c) All decisions of the Development Committee or the designated
officer(s) of the Party(ies) made in accordance with the procedures set forth in
this Section 3.4 shall be final and binding upon the Parties and shall only he
appealable by either of the Parties if not made in good faith or, to the extent
applicable, with appropriate consideration of reasonable business, scientific
and technical feasibility concerns.
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3.5 Term. The Development Committee shall exist for such period as
necessary to perform the responsibilities assigned to it under this Agreement.
3.6 Expenses. Each Party shall be responsible for all travel and related
costs for its representatives to attend meetings of, and otherwise participate
on, the Development Committee.
4. INITIAL SYSTEM PURCHASE PRICE; PAYMENT.
4.1 Initial System Purchase Price. The total purchase price (the
"Initial System Purchase Price") payable by BMS in consideration of IRORI's
manufacture, delivery and instillation of the Initial System by IRORI, and the
Right and License with respect thereto that will be effective upon the
Acceptance Date with respect to the Initial System, shall be *** .
Notwithstanding any other provision of this Agreement, IRORI shall not be
entitled to receive any consideration beyond the amount of the Initial System
Purchase Price in connection with such manufacture, delivery and installation,
except pursuant to Section 5.4.
4.2 Payment Schedule. BMS shall pay the Initial System Purchase Price
upon the occurrence of the events set forth on Exhibit A (each such event, a
"Development Milestone") and in accordance with the progress payment schedule
set forth on Exhibit B attached. Each progress payment shall be made within 30
days after the satisfaction of the relevant Development Milestone as provided in
Section 2.2, without the need for IRORI to submit an invoice therefor to BMS.
4.3 Mode of Payment; Taxes. BMS shall make all payments required under
this Agreement as directed by IRORI from time to time in U.S. Dollars. BMS shall
pay all federal, state and local sales, use, property, excise or other taxes
imposed on or with respect to the manufacture, delivery and installation of the
Systems, except taxes levied on IRORI's net income.
5. INTELLECTUAL PROPERTY; UPDATES.
5.1 Invention Ownership. IRORI shall own all inventions, processes,
improvements, works of authorship, technology, ideas, data and know-how, whether
or not entitled to patent or copyright protection, that arise from IRORI's
performance of its obligation to manufacture the System (collectively,
"inventions"). The Parties agree that any Inventions shall not constitute "works
made for hire" under U.S. copyright law.
5.2 Title Does Not Pass; Right and License. Notwithstanding any other
provision of this Agreement, title to any Software, Inventions and other
proprietary intellectual property of IRORI adapted or incorporated into the
System, Updates (as such term is defined herein) or Enhancements (collectively,
the "IRORI Intellectual property") shall not pass to BMS. Instead, to the extent
necessary, IRORI hereby grants BMS (effective upon the Acceptance Date with
respect to each System) a non-exclusive, paid-up worldwide right and license
during the term of this Agreement under the IRORI Intellectual Property to
operate each respective System purchased pursuant to this Agreement and exercise
its rights under this Agreement (collectively, the "Right and License"). BMS
shall not have the right to sublicense the Right and License without the prior
written consent of IRORI. BMS shall not have the right to assign the Right and
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License except in connection with an assignment of all of BMS's rights and
obligations under this Agreement pursuant to, and in compliance with, Section
14.3.
5.3 Updates. For a period of *** following the Acceptance Date with
respect to each System and at no cost to BMS, IRORI shall provide and
incorporate into such System, or grant BMS a Right and License to use, as the
case may be, all Updates to such System that are developed during such period.
Following such *** period, BMS shall have the right to purchase, or to be
granted a Right aid License to use, as the case may be, such Updates at IRORI's
standard commercial races therefor. Title to all Updates that are not IRORI
Intellectual Property shall pass to BMS upon their incorporation into the
System.
5.4 Enhancements.
(a) During the term of this Agreement, IRORI shall notify BMS
promptly after the development of any Enhancement not developed for BMS pursuant
to Section 5.4(b). Any such notice shall include a copy of the applicable
Enhancement Specifications. BMS shall have the right to purchase, or to obtain a
Right and License to use, as the case may be, any or all such Enhancements. In
the event that BMS wishes to purchase any such Enhancement or such Right and
License, BMS shall notify IRORI, and IRORI shall quote BMS a price therefor (the
"Enhancement Purchase Price"). *** *** ***. BMS may purchase such
Enhancement or a Right and License to use same, as the case may be, by
submitting a purchase order which is in a form mutually acceptable to the
parties, to the extent that such form is not inconsistent with the terms of this
Agreement, within *** .
(b) In addition, BMS shall have the right to request, from time
to time, that IRORI develop Enhancements to meet Enhancement Specifications
proposed by BMS. IRORI shall not unreasonably refuse to develop any such
Enhancements. Promptly after any such request by BMS, the Development Committee
shall develop the Enhancement Specifications for the Enhancement. Promptly after
the Enhancement Specifications have been finalized, IRORI shall quote BMS the
Enhancement Purchase Price for the development and incorporation of such
Enhancement into the System (and, to the extent necessary a Right and License to
use same), *** , and shall provide a good faith estimate of the time IRORI will
require to develop such Enhancement. BMS may purchase such Enhancement or a
Right and License to use same, as the case may be, by submitting a purchase
order which is in a form mutually acceptable to the parties, to the extent that
such form is not inconsistent with the terms of this Agreement, *** . Following
receipt of any such purchase order, IRORI shall use its best commercial efforts
to deliver and incorporate into the System such Enhancement within the estimated
development period.
(c) For a period of *** after IRORI's incorporation of any
Enhancement into the System, BMS shall have the right to test the System to
verify that the Enhancement conforms to the applicable Enhancement
Specifications (using the testing protocol developed by the
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Development Committee). If BMS fails to notify IRORI that the Enhancement does
not conform to the applicable Enhancement Specifications prior to the end of
such *** period, then the Enhancement shall be deemed so to conform, and BMS
shall be deemed to have accepted it.
(d) If such testing indicates that the Enhancement does not
conform to the Enhancement Specifications, then prior to the expiration of such
*** period referred to in Section 5.4(c), BMS shall notify IRORI of such
non-conformity in sufficient detail to allow IRORI to attempt to bring the
Enhancement into conformity with the applicable Enhancement Specifications.
During the *** period following receipt of any such notice, IRORI shall use
its best commercial efforts to bring the Enhancement into conformity with the
applicable Enhancement Specifications, and BMS shall allow IRORI's
representatives reasonable access to the System(s), during normal business
hours, for such purpose. If BMS reasonably determines, within *** after such
*** period, that the Enhancement does not conform to the applicable
Enhancement Specifications, then BMS shall be entitled to reject the Enhancement
by notice to IRORI. In the event of any such rejection, IRORI shall promptly
un-install the Enhancement and refund to BMS the entire amount of price
previously paid by BMS with respect thereto. If BMS fails to notify IRORI that
the Enhancement does not conform to the applicable Enhancement Specifications
prior to the end of such *** period, then the Enhancement shall be deemed so
to conform, and BMS shall be deemed to have accepted it.
(e) Title to all Enhancements (i.e., to BMS's physical copies
thereof) that are not IRORI Intellectual Property shall pass to BMS upon BMS's
acceptance thereof.
(f) IRORI shall submit an invoice for the Enhancement Purchase
Price to BMS upon delivery and installation of an Enhancement into the System.
All invoices shall be sent to the address specified on the BMS purchase order.
Payment of such invoices shall made within 45 days after receipt of an invoice
for such payment.
5.5 Installation. The Parties shall cooperate in coordinating the
delivery and installation of any Updates or Enhancements.
5.6 Source Code.
(a) Within 180 days after the Effective Date and within 10 days
after the first day of each calendar quarter thereafter until the Source Code
Release Date (as herein defined), IRORI shall deposit with Data Securities
International, located in San Diego, California (the "Escrow Agent"), a copy of
the most current source code and any documentation (including drawings,
blueprints and other technical information) of and for the Software or otherwise
necessary or useful for the operation of the System, all pursuant to an escrow
agreement (the "Escrow Agreement") the terms and conditions of which are
acceptable to BMS. The Escrow Agreement shall provide, among other things, that
BMS shall have access to such source code, subject to the Right and License and
the other terms and conditions of this Agreement, if IRORI or any of its
Affiliates becomes the subject of any voluntary or involuntary proceeding, under
state or federal law, in the nature of bankruptcy, receivership or assignment
for the benefit
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of creditors which is not dismissed withal 60 days after the
institution, initiation or filing of such proceeding.
(b) ***
***
***
*** . Notwithstanding any other provision of this Agreement,
BMS's rights under this Section 5.6(b) shall terminate upon any assignment of
its rights and obligations under this Agreement to a Third Party,
6. SUPPORT; TRAINING.
6.1 Support and Maintenance. During the *** period following the
Acceptance Date with respect to each System, IRORI shall provide BMS with
customer and technical support in connection with BMS's use of such System, and
maintenance of such System, at no additional cost to BMS. After such ***
period and during the remainder of the term of this Agreement, IRORI shall
provide BMS with customer and technical support in connection with BMS's use of
such System, and maintenance of such System, at IRORI's published commercial
rates therefor. Such support and maintenance shall include critical bug fixes,
reasonable assistance via telephone and fax, dial in via modem assistance,
receipt of any newsletter or other customer publications put out by IRORI and
on-site support.
6.2 Training. For a period of *** after the Acceptance Date with
respect to each System, and for a period of *** following the installation
of any major Update or BMS's acceptance of any Enhancement, IRORI shall provide
training in the operation and maintenance thereof to BMS's employees at the
Facility, at no additional cost to BMS. BMS shall be responsible for all per
diem expenses incurred by its employees in connection with any such training.
The Parties shall cooperate in the scheduling of all such training.
7. SUPPLY AND PURCHASE.
7.1 Initial Obligations.
(a) On the Acceptance Date with respect to the Initial System,
BMS automatically shall be deemed to have ordered from IRORI an aggregate of
*** NanoKans, at a price of *** each, and IRORI shall be entitled to
submit to BMS an invoice therefor, in accordance with Section 7.9(a).
(b) From time to time after the Acceptance Date with respect to
the Initial System, BMS shall deliver to IRORI resins to be loaded into the
NanoKans ordered by BMS pursuant to Section 7.1(a) (arty resins delivered by BMS
pursuant to this Section 7 collectively, the "BMS Resins"), accompanied by
instructions as to how many of such NanoKans should be loaded with such BMS
Resins and as to shipping and delivery of such NanoKans. Within 30
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days after each such delivery of a sufficient quantity of BMS Resins, IRORI
shall load such NanoKans with such BMS Resins and deliver same to BMS in
accordance with Section 7.4, at no additional cost or expense to BMS. IRORI
acknowledges that all BMS Resins shall be proprietary to, and shall constitute
Confidential Information of, BMS.
7.2 Requirements.
(a) After BMS has ordered an aggregate of *** NanoKans pursuant
to Section 7.1, BMS shall purchase from IRORI, and IRORI shall supply to BMS,
NanoKans representing 100(degree)% of BMS's requirements for microreactors for
solid phase synthesis for use with the Systems. ***
***
*** . If IRORI has not supplied NanoKans to any Third
Party within such 12-month period, then such price shall be *** per NanoKan,
subject to adjustment commencing on January 1, 2001 (and on each January 1
thereafter) to reflect the aggregate change, if any, in the Consumer Price Index
(All Consumers, All Urban Areas), published by the U.S. Department of Labor,
during the period commencing on the immediately preceding January 1.
(b) At any time following the seventh anniversary of the
Acceptance Date with respect to the Initial System, BMS shall have the right to
terminate its obligations under Section 7.2(a), or from time to time to reduce
the percentage of BMS's requirements for NanoKans that it is obligated to
purchase thereunder, by giving 180 days' prior notice to IRORI.
7.3 Orders. Except as set forth in Section 7.1, BMS shall place orders
for NanoKans with IRORI, setting forth trade units, delivery dates and shipping
instructions with respect to each shipment, from time to time. IRORI shall
accept such orders from BMS. BMS's orders shall be made pursuant to a purchase
order which is in a form mutually acceptable to the parties, to the extent that
such form is not inconsistent with the terms of this Agreement. In conjunction
with the delivery of each such purchase order, BMS shall deliver to IRORI a
sufficient quantity of the BMS Resins with which the NanoKans ordered by BMS are
to be loaded.
7.4 Delivery. IRORI shall deliver all NanoKans ordered by BMS pursuant
to Section 7.3 or 7.7 within *** of IRORI's receipt of BMS's purchase order
therefor (provided that BMS has delivered a sufficient quantity of the BMS
Resins as provided in Section 7.3 or 7.7, as applicable). All NanoKans delivered
pursuant to this Agreement shall be suitably packed for shipment by IRORI and
marked for shipment to the destination point indicated in BMS's purchase order.
All NanoKans will be delivered F.O.B. the shipping point designated by IRORI.
The shipping packaging shall be in accordance with good commercial practice with
respect to protection of the NanoKans during transportation. All shipping and
insurance costs, as well as any special packaging expenses, shall be paid by
BMS.
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7.5 Quality Control. IRORI shall conduct quality control testing of the
NanoKans prior to shipment in accordance with its customary quality control
procedures. IRORI shall retain records pertaining to such testing.
7.6 Acceptance; Rejection.
(a) BMS may test or cause to be tested the NanoKans supplied by
IRORI, using a random sampling methodology and otherwise in accordance with
BMS's customary procedures, within *** of receipt thereof by BMS or its
designee. BMS or its designee shall have the right to reject any shipment of
NanoKans made to it under this Agreement which does not meet the NanoKan
Specifications when received by BMS. All claims by BMS of non-conforming
NanoKans shall be deemed waived unless made by BMS in writing and received by
IRORI within such *** period. At IRORI's request and expense, BMS shall
return to IRORI or destroy, in accordance with IRORI's instructions, any
rejected shipment of NanoKans.
(b) In the event that the parties are unable to agree as to
whether a shipment of NanoKans supplied by IRORI hereunder meet the NanoKan
Specifications, such question shall be submitted to an independent quality
control laboratory as the Parties may mutually agree upon. The findings of such
independent laboratory shall be binding upon the Parties, absent manifest error.
The cost of the independent quality control laboratory shall be borne by the
Party whose results are shown by such laboratory to have been incorrect.
(c) In the event that IRORI concedes or the independent quality
control laboratory finds that a shipment of NanoKans does not comply with the
NanoKan Specifications, IRORI will, to the extent such shipment has not been
replaced pursuant to Section 7.7, remanufacture and deliver to BMS the same
quantity of NanoKans as contained in the shipment in question promptly after
BMS's delivery of replacement BMS Resins to be loaded into such NanoKans.
7.7 Interim Replacement. During the pendency of any dispute concerning
the conformity of a shipment of NanoKans to the NanoKan Specifications, IRORI
shall replace the shipment under dispute, at the request of BMS, promptly after
BMS's delivery of replacement BMS Resins to be loaded into such NanoKans. Such
replacement NanoKans shall be ordered in accordance with Section 7.3 and shall
be invoiced by IRORI and paid for by BMS at the same price as the rejected
shipment of NanoKans was invoiced.
7.8 Replacement of BMS Resins. In the event that any BMS Resins
delivered to IRORI pursuant to this Section 7 are damaged or destroyed due to
the negligence or willful misconduct of IRORI, or its employees or agents, then
IRORI shall reimburse BMS for any actual manufacturing costs incurred by BMS in
connection with the replacement of such BMS Resins.
7.9 Invoicing; Payment.
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(a) IRORI shall submit an invoice to BMS upon shipment of
NanoKans ordered by BMS hereunder, whether pursuant to Section 7.1, 7.3 or 7.7.
All invoices shall be sent to the address specified on the BMS purchase order,
and each such invoice shall include any insurance, taxes or other costs incident
to the purchase or shipment initially paid by IRORI but to be borne by BMS
hereunder.
(b) Payment of such invoices shall made within 45 days after
receipt of an invoice for such payment; provided, however, that BMS shall not be
required to pay any invoice with respect to any shipment of NanoKans that fails
to meet the NanoKan Specifications, but BMS shall be obligated to pay in full
for any rejected shipment of NanoKans that is subsequently determined to meet
the NanoKan Specifications; and provided, further, that the running of such
45-day period shall be tolled during the pendency of any dispute concerning the
conformity of a shipment of NanoKans to the NanoKan Specifications. In the event
that BMS pays for a shipment of NanoKans and subsequently rejects such shipment
in accordance with the terms of this Agreement, BMS shall be entitled to a
refund or credit equal to the amount paid with respect to such rejected shipment
and to reimbursement of the actual manufacturing costs incurred by BMS in
connection with a BMS Resins loaded into such NanoKans.
7.10 Allocation.
(a) Subject to Section 7.10(b), in the event that IRORI is unable
to supply all of BMS's requirements for NanoKans in accordance with Section 7.4,
due to force majeure or otherwise, IRORI shall allocate to *** of its
available NanoKans to BMS until IRORI has supplied all such NanoKans.
(b) The Parties acknowledge and agree that during the term of
this Agreement IRORI may enter into a relationship with one Third Party that
shall be a strategic partner for purposes of this Section 7.10. If, at any time
when IRORI is unable to supply all of BMS's requirements for NanoKans, IRORI has
entered into a relationship with such a strategic partner, then IRORI shall
allocate *** of its available NanoKans between BMS and such partner, in
proportion to the quantity of NanoKans for which each of them has orders pending
at such time. IRORI shall promptly disclose BMS the identity of any such
strategic partner, if such strategic partner consents to such disclosure, in
which case IRORI shall have the right to disclose to such strategic partner the
existence (but not the specific financial terms) of BMS's relationship with
IRORI under this Agreement. In any event, in connection with any allocation
under this Section 7.10(b), IRORI shall notify BMS promptly of the identity of
any such strategic partner, if IRORI has not already done so.
7.11 Right to Manufacture.
(a) In the event of an Inability to Supply, BMS may elect either:
(i) to manufacture (or have manufactured) pursuant to Section 7.12 such quantity
of NanoKans that IRORI fails so to supply; or (ii) to assume full responsibility
for the supply of all of BMS's requirements for NanoKans under this Agreement.
For purposes of this Section 7, an "Inability
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to Supply" shall mean: (X) with respect to any 60-day period, more than ***
of the NanoKans to be delivered during such period were delivered more than 30
days after the respective delivery dates therefor; or (Y) with respect to any
six-month period, more than *** of the NanoKans to be delivered during such
period were delivered after the respective delivery dates therefor, provided, in
each case, that not more than *** , nor fewer than *** , NanoKans were to
be delivered during any 30-day period.
(b) The remedy provided in this Section 7.11 shall be in addition
to any other remedies available to BMS under this Agreement, at law or in
equity. BMS's rights under this Section 7.11 shall not be affected in any way by
its waiver or failure to take action with respect to any previous event giving
rise to such right.
7.12 BMS's Right to Manufacture. IRORI hereby grants to BMS, and BMS
hereby accepts, a license (the "Manufacturing License") under all necessary
IRORI patents and know-how to make or have made NanoKans for such of BMS's
requirements as BMS has elected pursuant to Section 7.11(a)(i) or (ii). Such
Manufacturing License shall be subject to all other terms and conditions of this
Agreement. In addition, BMS agrees not to exercise any of its rights under the
Manufacturing License except to the extent expressly permitted in Section
7.11(a). In such event: (i) IRORI shall provide to BMS (or its designee) copies
of all documentation within IRORI's control that is reasonably necessary for BMS
to manufacture (or have manufactured) NanoKans; (ii) IRORI shall provide such
technical assistance to BMS (or its designee) as is reasonably necessary to
enable BMS (or such of its Affiliates, Third Parties or designees as it may
designate) to manufacture NanoKans pursuant to the NanoKan Specifications,
including, without limitation, providing all information and know-how necessary
or useful for the construction of a resin-loading machine; (iii) BMS shall be
relieved of its obligation to purchase such quantities of NanoKans from IRORI,
to the extent that BMS has the right to exercise the Manufacturing License; and
(iv) IRORI shall reasonably cooperate with BMS to establish an alternative
supply, including sources of materials. In the event that BMS has NanoKans
manufactured by a Third Party, such Third Party shall enter into a
confidentiality agreement with IRORI to protect against the unauthorized use and
disclosure of IRORI's Confidential Information.
8. REPRESENTATIONS AND WARRANTIES; COVENANTS.
8.1 Representations and Warranties of Both Parties. Each Party
represents and warrants to the other Party that: (i) it is free to enter into
this Agreement; (ii) in so doing, it will not violate my other agreement to
which it is a party; and (iii) it has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement.
8.2 Representations and Warranties of IRORI. IRORI represents and
warrants to BMS that:
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(a) IRORI shall adhere to all governmental laws and regulations
applicable to the performance of its obligations under this Agreement.
(b) IRORI shall have secured in a timely manner all permits or
licenses required in connection with the performance of its obligations under
this Agreement.
(c) Neither IRORI's manufacture, delivery, installation and sale
of the System, nor its manufacture and sale of NanoKans, nor BMS's use of the
System or NanoKans shall infringe upon any U.S. or foreign Patent and shall not
violate, convict with or infringe upon any other rights of any Third Party.
(d) No action; suit of claim, has been initiated, or threatened
in writing, against IRORI with respect to the intellectual property necessary
for it to perform its obligations under this Agreement (including, without
limitation, the IRORI Intellectual Property in existence as of the Effective
Date), or its right to enter into and perform its obligations under this
Agreement.
(e) Each System and Enhancement shall be free from defects in
material and workmanship under normal use and service and, if operated and
maintained in accordance with IRORI's reasonable written instructions, shall
perform in accordance with the System Specifications or applicable Enhancement
Specifications, as the case may be, for a period of *** with respect thereto.
(f) IRORI has not previously entered into or agreed to enter into
any agreements with any Third Parties with respect to the manufacture, delivery
and installation of any Systems or the manufacture and supply of NanoKans;
provided, however, that BMS acknowledges that IRORI is in advanced stages of
discussions with one Third Party which may become the strategic partner referred
to in Section 7.10(b) and/or the Permitted Purchaser (as such term is defined in
Section 9.1); and provided, further, that the Parties agree that in the event,
prior to the Effective Date, IRORI has entered into an agreement with any Third
Party pursuant to which it becomes such strategic partner and/or such Permitted
Purchaser, then IRORI shall not have the right to enter into any agreements with
any additional Third Parties pursuant to Section 7.10(b) and/or 9.1, as the case
may be.
8.3 Limited Right of Repair. In connection with any breach of the
representations and warranties of IRORI set forth in Section 8.2(e) arising
after BMS's acceptance of a System or an Enhancement, as the case may be, IRORI
shall be entitled, at its sole cost and expense, to attempt to rectify, via
repair, replacement or Update, any such breach during a reasonable period of
time (but in no event greater than 60 days) after BMS provides IRORI notice of
such breach. During any such period when IRORI is diligently attempting to
rectify any such breach (or, if IRORI succeeds in so rectifying, thereafter),
BMS shall not pursue any remedy under this Agreement or otherwise at law or in
equity with respect to such breach. The Parties acknowledge and agree that any
forbearance by BMS pursuant to the preceding sentence shall not constitute a
waiver of any of BMS's rights in connection with such breach.
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8.4 Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN SECTIONS
8.1 AND 8.2, IRORI DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY EXPRESS OR IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF DESIGN, MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FRONT A COURSE OF DEALING OR
USAGE OF TRADE PRACTICE, WITH RESPECT TO ANY SYSTEM OR NANOKANS PURCHASED BY BMS
UNDER THIS AGREEMENT.
8.5 Covenants of BMS. BMS covenants to IRORI that BMS shall not create,
or attempt to create, by decompilation, reverse engineering or otherwise, the
System or any of its components, including without limitation the Software, or
NanoKans.
9. THIRD PARTIES.
9.1 Semi-Exclusivity. During the period commencing on the Effective Date
and ending on the first anniversary of the Acceptance Date with respect to the
Initial System, IRORI shall not sell, license, lease or otherwise transfer any
interest in a System (or any functionally equivalent system,) to or for, or
operate a System (or any functionally equivalent system) for the benefit of,
more than one Third Party (such one Third Party, the "Permitted Purchaser"),
which shall be chosen at IRORI's sale discretion.
9.2 Most Favored Nation.
(a) If, during the period commencing on the Effective Date and
ending on the *** with respect to the Initial System (the "Protected
Period"), IRORI sells, or otherwise conveys full or substantially full title to,
a System (or any functionally equivalent system) to any Third Party at a price
less than the Initial System Purchase Price (a "Below-Price Sale"), then the
Initial System Purchase Price shall be adjusted, whether prospectively or
retroactively, to such lower price. IRORI shall promptly notify BMS of any
Below-Price Sale. If a Below-Price Sale occurs prior to BMS's payment in full of
the Initial System Purchase Price, then BMS's remaining payments against the
Initial System Purchase Price shall be adjusted accordingly. To the extent that
the amount of such remaining payments is insufficient to realize the full
adjustment to be made pursuant to this Section 9.2 or if a Below-Sale occurs
after BMS's payment in full of the Initial System Purchase Price, IRORI shall
refund the difference or the amount of such adjustment, as the case may be, to
BMS within 30 days after the date of IRORI's notice of such Below-Price Sale.
(b) During the Protected Period, following any adjustment of the
Initial System Purchase Price pursuant to Section 9.2(a), if and as often as
IRORI sells, or otherwise conveys full or substantially full title to, a System
(or any functionally equivalent system,) to any Third Party at a price less than
the price to which the Initial System Purchase Price previously has been
adjusted, then the Initial System Purchase Price shall be further adjusted to
such lower price, in accordance with Section 9.2(a).
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(c) Notwithstanding the other provisions of this Section 9.2, the
Parties acknowledge and agree that if any Third Party purchases a System for no
less than *** and subsequently purchases a second System for no less than
*** , the purchase and sale of such second System shall not constitute a
Below-Price Sale.
9.3 Audit Request.
(a) Commencing on the Effective Date and until the sixth
anniversary of the Acceptance Date with respect to the Initial System, at the
request of BMS, IRORI and its Affiliates shall permit an independent certified
public accountant appointed by BMS, at reasonable times and upon reasonable
notice, to examine all relevant records and all other documents in the
possession or control of IRORI or its Affiliates as may be necessary: (i) to
verify IRORI's satisfaction of its obligations under Sections 9.1 and 9.2; or
(ii) to verify that IRORI is not in breach of its representation and warranty
under Section 8.2(f).
(b) During the term of this Agreement and for a period of three
years thereafter, at the request of BMS, IRORI and its Affiliates shall permit
an independent certified public accountant appointed by BMS, at reasonable times
and upon reasonable notice, to examine all relevant records and all other
documents in the possession or control of IRORI or its Affiliates as may be
necessary: (i) to verify IRORI's satisfaction of its obligations under Section
7.10; or (ii) in connection with any assignment pursuant to Section 14.3(b), to
verify the correctness of any Assignment Fee charged by IRORI.
(c) Said accountant shall not disclose to BMS the identity of any
Third party with which IRORI has a relationship. The results of any such
examination shall be made available to both Parties. BMS shall bear the full
cost of the performance of any such audit unless the results of such audit
indicate that IRORI is in default with respect to its obligations identified in
Section 9.3(a) or (b), in which event IRORI shall bear such cost.
10. INDEMNIFICATION.
10.1 Obligation to Indemnify. Subject to Section 8.3, IRORI shall
defend, indemnify and hold BMS and its Affiliates, and each of their respective
directors, officers and employees (each, an "Indemnitee"), harmless from and
against any and all claims, suits or demands for liability, damages, losses,
costs and expenses (including the costs and expenses of attorneys and other
professionals) arising out of Third Party claims or suits resulting from a
breach of IRORI's representations and warranties set forth in Section 8.2, or
from any tort claims of personal injury (including death) or property damage
relating to or arising out of BMS's use of the System and/or NanoKans in
accordance with the System Specifications and/or the NanoKan Specifications, as
the case may be, and IRORI's written instructions.
10.2 Notice. In the event that any Indemnitee is seeking indemnification
under Section 10.1, such Indemnitee shall inform IRORI of a claim as soon as
reasonably practicable after it receives notice of the claim, shall permit IRORI
to assume direction and control of the defense of the claim (including the sole
right to settle the claim at IRORI's sole discretion,
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provided that such settlement does not materially adversely affect any rights
of, or impose any obligation on, the Indemnitee) with legal counsel selected by
IRORI and reasonably acceptable to BMS, and shall cooperate as requested (at the
expense of the IRORI) in the defense of the claim.
10.3 Complete Indemnification. As the Parties intend complete
indemnification, all costs and expenses incurred by an Indemnitee in connection
with enforcement of this Section 10 shall also be reimbursed by IRORI.
10.4 Insurance. During the term of this Agreement and for a period of 10
years thereafter, IRORI shall maintain basic comprehensive general liability and
products liability insurance (including contractual liability coverage on
IRORI's indemnification obligations under this Agreement) with respect to the
work it performs and the products it manufactures and sells under this Agreement
substantially consistent with the insurance coverage described on Exhibit C,
which insurance shall designate BMS as an additional insured and shall pay the
premiums due thereunder. The terms and conditions of such insurance policy and
any and all amendments thereto, as well as the amount insured, shall be
submitted for reasonable approval to BMS, and BMS shall receive a copy of any
such policy and amendments thereto.
10.5 Partial Limitation on IRORI Indemnity. In no event shall IRORI's
liability under this Section 10 with respect to Third Party claims or suits
resulting from a breach of IRORI's representations and warranties set forth in
Section 8.2 exceed the total Purchase Price paid by BMS under this Agreement.
11. CONFIDENTIALITY.
11.1 Confidential Information. Except as expressly provided herein, the
Parties agree that, during the term of this Agreement and for eight years
thereafter, the receiving Party shall not publish or otherwise disclose and
shall not use for any purpose any information furnished to it by the other Party
pursuant to this Agreement which, if disclosed in tangible form, is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature or, if disclosed orally, is indicated as confidential or
proprietary in writing by the disclosing Patty within a reasonable time after
such disclosure (collectively, "Confidential Information"). Notwithstanding the
foregoing, Confidential Information shall not include information that, in each
case as demonstrated by written documentation:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; or
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(d) was subsequently lawfully disclosed to the receiving Party by
a Third Party or developed by the receiving Party without reference to any
information or materials disclosed by the disclosing Party.
11.2 Permitted Disclosures. Notwithstanding the provisions of Section
11.1, each Party may disclose the other Party's Confidential Information to the
extent such disclosure is reasonably necessary to exercise the rights granted to
it under this Agreement or to comply with applicable laws and regulations,
provided that if a Party is required to make any such disclosure of the other
Party's Confidential Information, to the extent it may legally do so, it will
give reasonable advance notice to the latter Party of such disclosure and will
use its reasonable efforts to limit the scope of such disclosure to only that
information which it is necessary to disclose and to secure confidential
treatment of such information prior to its disclosure. If the Party whose
Confidential Information is to be disclosed has not filed a patent application
with respect to such Confidential Information, it may require the other Party to
delay the proposed disclosure (to the extent the disclosing Party may legally do
so) for up to 90 days, to allow for the filing of such as application.
11.3 Remedies. Each Party shall be entitled, in addition to any other
right or remedy it may have, at law or in equity, to temporary, preliminary and
permanent injunctions, without the posting of any bond or other security,
enjoining or restraining the other Party and its Affiliates from any violation
or threatened violation of this Section 11.
12. TERM; TERMINATION.
12.1 Term. The term of this Agreement shall commence as of the Effective
Date and shall expire upon the termination, pursuant to Section 7.2(b), of BMS's
obligation to purchase NanoKans from IRORI, unless sooner terminated in
accordance with this Section 12.
12.2 Termination by BMS. BMS shall have the right to terminate this
Agreement at any time prior to the Acceptance Date with respect to the Initial
System, upon notice to IRORI, without further obligation to IRORI except as
provided in this Section 12.2 and in Section 12.4(b). In conjunction with BMS's
giving of any such notice, BMS shall pay the next payment of the Initial System
Purchase Price that would have accrued under Section 4.2 if BMS had not
terminated this Agreement. In addition, following any such termination, IRORI
shall be entitled to retain all payments of the Initial System Purchase Price
that BMS shall have made prior to the date of any such notice, and BMS shall
remain liable to IRORI for all payments of the Initial System Purchase Price
that shall have accrued but shall not have been paid prior to the date of any
such notice.
12.3 Breach.
(a) Subject to Section 12.3(b), failure by either Party to comply
with any of the material obligations contained in this Agreement shall entitle
the other Party to give to the Party in default notice specifying the nature of
the default and requiring it to cure such default. If such default is not cured
within 30 days after the receipt of such notice (or, if such default reasonably
cannot be cured within such 30-day period, if the Party in default does not
commence and diligently continue actions to cure such default), the notifying
Party shall be entitled, without
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prejudice to any of its other rights conferred on it by this Agreement and in
addition to any other remedies available to it at law or in equity, to terminate
this Agreement by giving further written notice, to take effect immediately upon
delivery thereof. The right of either Party to terminate this Agreement, as
provided in this Section 12.3(a), shall not be affected in any way by its waiver
or failure to take action with respect to any previous default.
(b) Notwithstanding Section 12.3(a), BMS shall not have the right
to terminate this Agreement with respect to:
(i) Any failure of IRORI to satisfy a Development
Milestone or any failure of a System to conform to the System Specifications
until IRORI has been given an opportunity to rectify such failure, as provided
in Sections 2.2 and 2.3, as the case may be;
(ii) Any failure of as Enhancement to conform to the
applicable Enhancement Specifications;
(iii) Any alleged failure of NanoKans supplied hereunder
to conform to the NanoKan Specifications;
(iv) Any Inability to Supply;
(v) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) arising after BMS's acceptance of a System
unless IRORI has been given an opportunity to rectify such breach, as provided
in Section 8.3; or
(vi) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) with respect to any Enhancement.
12.4 Effect of Termination.
(a) Following the expiration of the term of this Agreement
pursuant to Section 12.1 due to the termination, pursuant to Section 7.2(b), of
BMS's obligation to purchase NanoKans from IRORI, the Right and License shall
become perpetual.
(b) Following the termination of this Agreement by BMS pursuant
to Section 12.2, BMS shall return to IRORI the Initial System, or any components
thereof, to the extent that same shall have been delivered to BMS prior to the
effective date of such termination, at BMS's sole cost and expense. Neither
Party thereafter shall have any obligation to the other, except under Section 11
and BMS's obligation to make payment of any portion of the Initial System
Purchase Price that shall have accrued as of the date of such termination, and
each Party shall return to the other all Confidential Information disclosed to
such Party by the other Party (and all copies, analyses, derivatives,
reflections and physical manifestations thereof); provided that each Party shall
have the right to retain one copy for archival purposes only.
(c) Following the termination of this Agreement by IRORI pursuant
to Section 12.3: (i) BMS shall return to IRORI all Systems and Enhancements
which it has not accepted prior to the effective date of any such termination,
at BMS's sole cost and expense; (ii) BMS shall be entitled to retain all Systems
and Enhancements which it has accepted and paid the
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Purchase Price for prior to the effective date of any such termination; (iii)
the light and License with respect to the Systems and Enhancements referred to
in clause (ii) shall become perpetual; and (iv) IRORI shall be entitled to
retain all payments of Purchase Price made by BMS prior to the effective date of
such termination.
(d) following the termination of this Agreement by BMS pursuant
to Section 12.3: (i) BMS shall be entitled to retain all Systems and
Enhancements which have been delivered to it prior to the effective date of any
such termination, to the extent that BMS subsequently accepts and pays for same
(including by offsetting any such payment obligations against BMS's claims
against IRORI for damages); (ii) BMS shall be entitled to return to IRORI all
Systems and Enhancements which have been delivered to BMS prior to the effective
date of any such termination that BMS subsequently rejects; (iii) the Right and
License with respect to the Systems and Enhancements referred to in clause (i)
shall become perpetual; and (iv) the Manufacturing License shall become
perpetual.
12.5 Accrued Rights, Surviving Obligations.
(a) Termination, relinquishment or expiration of this Agreement
for any reason shall be without prejudice to any rights which shall have accrued
to the benefit of either Party prior to such termination, relinquishment or
expiration. Such termination, relinquishment or expiration shall not relieve
either Party from obligations which are expressly indicated to survive
termination or expiration of this Agreement.
(b) Except as provided in Section 12.4(b), all of the Parties'
rights and obligations under Sections 2.4, 4.3, 5.1, 5.2, 5.4(e), the last
sentence of Section 7.1(b), 7.6, 7.7, 7.8, 8, 9.3, 10, 11, 12.4, 14.1, 14.3,
14.9, 14.14, 14.15 and 14.16 shall survive expiration, termination or
relinquishment of this Agreement.
13. FORCE MAJEURE.
13.1 Events of Force Majeure. Neither Party shall be held liable or
responsible to the other Party or be deemed to be in default under or in breach
of any provision of this Agreement (other than, any obligation to pay money) far
failure or delay in fulfilling or performing any obligation of this Agreement
when such failure or delay is due to force majeure, and without the fault or
negligence of the Party so failing or delaying. For purposes of this Agreement,
force majeure shall be defined as causes beyond the control of the Party,
including, without limitation, acts of God; acts, regulations, or laws of any
government; war; civil commotion; destruction of production facilities or
materials by fire, flood, earthquake, explosion or storm; labor disturbances;
epidemic; and failure of public utilities or common carriers. In such event BMS
or IRORI, as the case may be, shall immediately notify the other Party of such
inability and of the period for which such inability is expected to continue.
The Party giving such notice shall thereupon be excused from such of its
obligations under this Agreement (other than any obligation to pay money) as it
is thereby disabled from performing for so long as it is so disabled and the 30
days thereafter. However, the Party giving such notice shall use all reasonable
efforts to remedy such inability as soon as reasonably possible or seek an
alternative arrangement during the period of such inability.
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14. MISCELLANEOUS.
14.1 Non-Solicitation. During the period commencing on the Effective
Date and ending on the 18-month anniversary of the Acceptance Date with respect
to the Initial System (or, if BMS has ordered a Second System by such Acceptance
Date and subsequently accepts the Second System, the 18-month anniversary of the
Acceptance Date with respect to the Second System), neither Party shall solicit,
induce, encourage or attempt to induce or encourage any employee of the other
Party to terminate his or her employment with such other Party or to breach any
other obligation to such other Party.
14.2 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the Parties. No Party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
14.3 Assignment.
(a) This Agreement may not be assigned, in whole or in part, by
IRORI without the prior written consent of BMS.
(b) BMS may assign its rights and obligations under this
Agreement to a Third Party provided that: (i) such assignment is of all of such
rights and obligations; (ii) such Third Party agrees in writing to be bound by
the terms of this Agreement as if it were a party hereto; and (iii) IRORI is
paid the applicable Assignment Fee in connection with such assignment. For
purposes of this Section 14.3(b), "Assignment Fee" shall mean: (X ) ***
if, on the effective date of such assignment, IRORI has sold, licensed, leased
or otherwise disposed of any interest in a System (or any functionally
equivalent system) to or for, or operated a System (or any functionally
equivalent system) for the benefit of, *** or fewer Third Parties, and
(Y) *** if, on such date, IRORI has sold, licensed, leased or otherwise
disposed of any interest in a System (or any functionally equivalent system) to
or for, or operated a System (or any functionally equivalent system) for the
benefit of, more than *** Third Parties.
(c) Notwithstanding Sections 14.3(a) and (b), either Party may
assign its respective rights and transfer its respective duties hereunder,
without the consent of the other Party, to any assignee of all or substantially
all of its respective business or in the event of its respective merger,
consolidation or similar transaction.
(d) Any assignment not in accordance with this Section 14.3 shall
be void.
14.4 Binding Effect. This Agreement shall be binding upon the successors
and permitted assigns of the Parties, and the name of a Party appearing herein
shall be deemed to include the names of such Parties successors and permitted
assigns to the extent necessary to carry out the intent of this Agreement.
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14.5 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the proposes and intent of this
Agreement, .
14.6 Costs and Expenses. Except as otherwise expressly provided in this
Agreement, each Party shall bear all costs and expenses associated with the
performance of such Party's obligations under this Agreement.
14.7 Inconsistency. If there is any inconsistency between the provisions
of this Agreement and any other document passing between the Parties, the
provisions of this Agreement shall control and be determinative.
14.8 Notice. Any notice, request or other communication required or
permitted to be given under or in connection with this Agreement shall be deemed
to have been sufficiently given if in writing and personally delivered or sent
by registered or certified mail, postage prepaid (return receipt requested),
facsimile transmission (receipt verified) or express courier service (signature
required), to the Party for which such notice is intended, at the address set
forth for such Party below:
(a) In the case of BMS, to:
Bristol-Myers Squibb Company
P.O. Box 4000
Route 206 & Province Line Road
Princeton, New Jersey 08543-4000
Attention: Vice President & Senior Counsel
Pharmaceutical Research Institute
and Worldwide Strategic Business
Development
Facsimile No.: (609) 252-4232
(b) In the case of IRORI, to:
IRORI
11149 North Torrey Pines Road
La Jolla, California 92037-1030
Attention: President
Facsimile No.: (619) 546-3083
or to such other address for such Party as it shall have specified by like
notice to the other Party, provided that notices of a change of address shall be
effective only upon receipt thereof. If sent by facsimile transmission or
express courier service, the date of mailing or transmission shall be deemed to
be the date on which such notice or request was given. If sent by registered or
certified mail, the third business day after the date of mailing shall be deemed
to be the date on which such notice or request was given.
24
<PAGE> 29
14.9 Use of Name. Except as otherwise provided herein, neither Party
shall have any right, express or implied, to use in any manner the name or other
designation of the other Party or any other trade name or trademark of the other
Party for any purpose.
14.10 Public Announcements. Neither Party shall make any public
announcement concerning this Agreement or the subject matter hereof without the
prior written consent of the other, which shall not be unreasonably withheld. In
the event of a required public announcement, the Party making such announcement
shall provide the other Party with a copy of the proposed text prior to such
announcement sufficiently in advance of the scheduled release of such
announcement to afford such other Party a reasonable opportunity to review and
comment upon the proposed text.
14.11 Waiver. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.
14.12 Severability. When possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement. In such event, the Parties agree to substitute a valid and
enforceable provision therefor which, as nearly as possible, achieves the
desired economic effect and mutual understanding of the Parties under this
Agreement.
14.13 Amendment. No amendment, modification or supplement of any
provisions of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.
14.14 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York, without regard to its
choice of law principles.
14.15 Arbitration.
(a) Except as otherwise provided in this Agreement, any dispute
arising out of or relating to any provisions of this Agreement shall be finally
settled by arbitration to be held in San Diego, California, under the auspices
and then current commercial arbitration rules of the American Arbitration
Association. Such arbitration shall be conducted by three arbitrators appointed
according to said rules. The Parties shall instruct such arbitrators to render a
determination of any such dispute within 30 days after their appointment.
Judgment upon any award rendered may be entered in any court having
jurisdiction, or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be.
25
<PAGE> 30
(b) Section 14.15(a) shall not prohibit a Party from seeking
injunctive relies from a court of competent jurisdiction in the event of a
breach or prospective breach of this Agreement by the other Party which would
cause irreparable harm to the first Party or under Section 11.
14.16 Limitation on Liability. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL IRORI BE LIABLE UNDER THIS
AGREEMENT FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR EXCEPTIONAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR REVENUES).
14.17 Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Parties as to the subject matter hereof and merges
all prior discussions and negotiations between them, and neither of the Parties
shall be bound by any conditions, definitions, warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein or as duly set forth on or subsequent to the date hereof in
writing and signed by a proper and duly authorized officer or representative of
the Party to be bound thereby.
14.18 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, any one of which need not contain the signature of more
than one Party but all such counterparts taken together shall constitute one and
the same agreement.
14.19 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
***
26
<PAGE> 31
IN WITNESS WHEREOF, each of the Parties has caused this Strategic
Alliance Agreement to be executed by its duly authorized officer as of the day
and year first above written.
BRISTOL-MYERS SQUIBB COMPANY
By: /s/ Charles Linzner
------------------------------------
Name: Charles Linzner
----------------------------------
Title: Vice President & Senior Counsel
---------------------------------
IRORI
By: /s/ Riccardo Pigliucci
------------------------------------
Name: Riccardo Pigliucci
----------------------------------
Title: Chief Executive Officer
---------------------------------
<PAGE> 32
EXHIBIT A
SYSTEM AND NANOKAN SPECIFICATIONS AND MILESTONES
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
Exhibit A-1
<PAGE> 33
EXHIBIT B
PROGRESS PAYMENT SCHEDULE
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
Exhibit B-1
<PAGE> 34
EXHIBIT C
DESCRIPTION OF INSURANCE COVERAGE
<TABLE>
<CAPTION>
TYPE OF COVERAGE PRIMARY COVERAGE UMBRELLA
<S> <C> <C>
Comprehensive General Liability (including $2,000,000* $9,000,000
Contractual Liability)
Personal & Advertising Injury $1,000,000 (incl. in above)
Products and Completed Operations 2,000,000* $9,000,000
</TABLE>
* $1,000,000 per occurrence and $2,000,000 in the aggregate.
Exhibit C-1
<PAGE> 1
EXHIBIT 10.40
STRATEGIC ALLIANCE AGREEMENT
BETWEEN
RHONE-POULENC RORER PHARMACEUTICALS INC.
AND
IRORI
DATED AS OF JUNE 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS......................................................................................... 1
1.1 "Acceptance Date".......................................................................... 1
1.2 "Affiliate"................................................................................ 2
1.3 "RPR Resins"............................................................................... 2
1.4 "Development Committee".................................................................... 2
1.5 "Development Milestone".................................................................... 2
1.6 "Effective Date"........................................................................... 2
1.7 "Enhancement".............................................................................. 2
1.8 "Enhancement Specifications"............................................................... 2
1.9 "Facility"................................................................................. 2
1.10 "Initial Delivery Deadline"................................................................ 2
1.11 "NanoKan".................................................................................. 2
1.12 "NanoKan Specifications"................................................................... 2
1.13 "Party".................................................................................... 3
1.14 "Purchase Price"........................................................................... 3
1.15 "RPR"...................................................................................... 3
1.16 "Right and License"........................................................................ 3
1.17 "Software"................................................................................. 3
1.18 "System"................................................................................... 3
1.19 "System Specifications".................................................................... 3
1.20 "Third Party".............................................................................. 3
1.21 "Update"................................................................................... 3
2. MANUFACTURE; DELIVERY; OPTION....................................................................... 3
2.1 Generally.................................................................................. 3
2.2 Satisfaction of Development Milestones, etc.; Acceptance; Rejection........................ 4
2.3 Delivery; Installation..................................................................... 5
2.4 Identification; Passage of Title........................................................... 6
2.5 Option to Purchase Additional System....................................................... 6
3. DEVELOPMENT COMMITTEE............................................................................... 9
3.1 Members.................................................................................... 9
3.2 Responsibilities........................................................................... 9
3.3 Meetings................................................................................... 9
3.4 Decisions.................................................................................. 10
3.5 Term....................................................................................... 10
3.6 Expenses................................................................................... 10
4. INITIAL SYSTEM PURCHASE PRICE; PAYMENT.............................................................. 10
4.1 Initial System Purchase Price.............................................................. 10
4.2 Payment Schedule........................................................................... 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.3 Mode of Payment; Taxes..................................................................... 11
5. INTELLECTUAL PROPERTY; UPDATES...................................................................... 11
5.1 Invention Ownership........................................................................ 11
5.2 Title Does Not Pass; Right and License..................................................... 11
5.3 Updates.................................................................................... 11
5.4 Enhancements............................................................................... 12
5.5 Installation............................................................................... 13
5.6 Source Code................................................................................ 13
6. SUPPORT; TRAINING................................................................................... 14
6.1 Support and Maintenance.................................................................... 14
6.2 Training................................................................................... 14
7. SUPPLY AND PURCHASE................................................................................. 15
7.1 Initial Obligations........................................................................ 15
7.2 Requirements............................................................................... 15
7.3 Orders..................................................................................... 15
7.4 Delivery................................................................................... 15
7.5 Quality Control............................................................................ 16
7.6 Acceptance; Rejection...................................................................... 16
7.7 Interim Replacement........................................................................ 16
7.8 Invoicing; Payment......................................................................... 17
7.9 Allocation................................................................................. 17
7.10 Right to Manufacture....................................................................... 17
7.11 RPR's Right to Manufacture................................................................. 18
8. REPRESENTATIONS AND WARRANTIES; COVENANTS........................................................... 18
8.1 Representations and Warranties of Both Parties............................................. 18
8.2 Representations and Warranties of IRORI.................................................... 18
8.3 Limited Right of Repair.................................................................... 19
8.4 Disclaimer of Warranty..................................................................... 19
8.5 Covenants of RPR........................................................................... 20
9. THIRD PARTIES....................................................................................... 20
9.1 Semi-Exclusivity........................................................................... 20
9.2 Most Favored Nation........................................................................ 20
9.3 Audit Request.............................................................................. 21
10. INDEMNIFICATION..................................................................................... 21
10.1 Obligation to Indemnify.................................................................... 21
10.2 Notice..................................................................................... 21
10.3 Complete Indemnification................................................................... 22
10.4 Insurance.................................................................................. 22
10.5 Partial Limitation on IRORI Indemnity...................................................... 22
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
11. CONFIDENTIALITY..................................................................................... 22
11.1 Confidential Information................................................................... 22
11.2 Permitted Disclosures...................................................................... 23
11.3 Remedies................................................................................... 23
12. TERM; TERMINATION................................................................................... 23
12.1 Term....................................................................................... 23
12.2 Termination by RPR......................................................................... 23
12.3 Breach..................................................................................... 24
12.4 Effect of Termination...................................................................... 25
12.5 Accrued Rights, Surviving Obligations...................................................... 26
13. FORCE MAJEURE....................................................................................... 26
13.1 Events of Force Majeure.................................................................... 26
14. MISCELLANEOUS....................................................................................... 26
14.1 Non-Solicitation........................................................................... 26
14.2 Relationship of Parties.................................................................... 27
14.3 Assignment................................................................................. 27
14.4 Binding Effect............................................................................. 27
14.5 Further Actions............................................................................ 27
14.6 Costs and Expenses......................................................................... 27
14.7 Inconsistency.............................................................................. 28
14.8 Notice..................................................................................... 28
14.9 Use of Name................................................................................ 28
14.10 Public Announcements....................................................................... 28
14.11 Waiver..................................................................................... 29
14.12 Severability............................................................................... 29
14.13 Amendment.................................................................................. 29
14.14 Governing Law.............................................................................. 29
14.15 Arbitration and Choice of Venue............................................................ 29
14.16 Limitation on Liability.................................................................... 30
14.17 Entire Agreement........................................................................... 30
14.18 Counterparts............................................................................... 30
14.19 Descriptive Headings....................................................................... 30
15. SECURITY INTEREST................................................................................... 30
15.1 Security Interest.......................................................................... 30
15.2 Further Assurances......................................................................... 31
15.3 Remedies................................................................................... 31
15.4 Right and License in the Event of Breach................................................... 31
15.5 Termination of Security Interest and Rights................................................ 32
</TABLE>
<PAGE> 5
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT A SYSTEM AND NANOKAN SPECIFICATIONS AND MILESTONES
EXHIBIT B PROGRESS PAYMENT SCHEDULE
EXHIBIT C DESCRIPTION OF INSURANCE COVERAGE
</TABLE>
<PAGE> 6
STRATEGIC ALLIANCE AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT (this "Agreement") dated as of June
15, 1998 by and between Rhone-Poulenc Rorer Pharmaceuticals Inc., a corporation
duly organized and existing under the laws of Pennsylvania, having offices at
500 Arcola Road, Collegeville, Pennsylvania 19426, for and on behalf of itself
and its Affiliates ("RPR"), and IRORI, a corporation duly organized and existing
under the laws of the State of California, having offices at 11149 North Torrey
Pines Road, La Jolla, California 92037-1030 ("IRORI" or the "Company").
PRELIMINARY STATEMENTS
A. RPR is a pharmaceutical company that engages in the discovery and
development of new drug products.
B. IRORI has developed directed sorting combinatorial chemistry systems
that use microreactors and miniature electronic tags.
C. RPR wishes to purchase from IRORI and secure a license from IRORI
with respect to, and IRORI wishes to manufacture and sell to RPR and grant a
license to RPR with respect to, a System, upon the terms and conditions set
forth in this Agreement.
D. In addition, RPR wishes to purchase from IRORI, and IRORI wishes to
sell to RPR, a quantity of NanoKans, also upon the terms and conditions set
forth in this Agreement.
E. In conjunction with the execution of this Agreement, the Parties are
entering into that certain Series D Preferred Stock Purchase Agreement, dated as
of the Effective Date (the "Stock Purchase Agreement"), and such other
agreements as are contemplated thereby.
NOW, THEREFORE, in consideration of the foregoing Preliminary Statements
and the mutual covenants and agreements of the Parties contained in this
Agreement, the Parties agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms will have those meanings
set forth in this Section 1 unless the context dictates otherwise.
1.1 "Acceptance Date" shall mean, with respect to a System or an
Enhancement, the date on which RPR accepts such System or Enhancement in
accordance with Section 2.3, 2.5(e) or 5.4, as the case may be; provided that if
before such date IRORI has notified RPR that the System or Enhancement has been
installed at the Facility and that it conforms to the System/Enhancement
Specifications, and the System/Enhancement is later determined to (or deemed to)
conform to those Specifications as of the date of such notice, then the
Acceptance Date shall be the date of such notice even if the date of actual
acceptance is later.
<PAGE> 7
1.2 "Affiliate", with respect to any Party, shall mean any entity
controlling, controlled by, or under common control with, such Party (but only
so long as such control relationship exists). For these purposes, "control"
shall refer to (i) the possession, directly or indirectly, of the power to
direct the management or policies of an entity, whether through the ownership of
voting securities, by contract or otherwise or (ii) the ownership, directly or
indirectly, of at least 50% of the voting securities or other ownership interest
of an entity.
1.3 "RPR Resins" shall mean the resins used by RPR in the NanoKans.
1.4 "Development Committee" shall have the meaning assigned thereto in
Section 3.1.
1.5 "Development Milestone" shall mean each of the milestones set forth
on Exhibit A attached.
1.6 "Effective Date" shall mean the date first written above.
1.7 "Enhancement" shall mean any upgrade or improvement to the System
that materially improves its utility, efficiency or efficacy and that is not
primarily intended to correct or avoid errors, malfunctions or defects in the
System.
1.8 "Enhancement Specifications" shall mean, with respect to any
Enhancement, written specifications that set forth with specificity the quality
and degree of improvement to the System that such Enhancement provides.
1.9 "Facility" shall mean a facility in the continental United States
with respect to the Initial System or any facility with respect to the Second
System, selected by RPR at its sole discretion pursuant to Section 2.3.
1.10 "Initial Delivery Deadline" shall mean *** .
1.11 "NanoKan" shall mean IRORI's proprietary microreactor for solid
phase synthesis that conforms to the NanoKan Specifications.
1.12 "NanoKan Specifications" shall mean the specifications set forth on
Exhibit A attached which relate to NanoKans, as may be amended by the
Development Committee from time to time.
1.13 "Party" shall mean RPR or IRORI and, when used in the plural, shall
mean RPR and IRORI.
1.14 "Purchase Price" shall mean the Initial System Purchase Price (as
such term is defined in Section 4.1), the Second System Purchase Price (as such
term is defined in Section 2.5) and the Enhancement Purchase Price(s) (as such
term is defined in Section 5.4), either individually or collectively, as context
dictates.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 8
1.15 "RPR" shall mean Rhone-Poulenc Rorer Pharmaceuticals Inc. together
with its Affiliates.
1.16 "Right and License" shall have the meaning assigned thereto in
Section 5.2.
1.17 "Software" shall mean all of the software adapted or incorporated
into the System from time to time.
1.18 "System" shall mean IRORI's proprietary NanoKan Reactor System,
including all hardware, equipment, Software and other components and any Updates
or Enhancements provided to RPR pursuant to Section 5.3 or 5.4. Except to the
extent context dictates otherwise, "System" shall include both the Initial
System (as defined in Section 2.1) and the Second System (as defined in Section
2.5).
1.19 "System Specifications" shall mean the specifications set forth on
Exhibit A attached relating to the System, as may be amended by the Development
Committee from time to time.
1.20 "Third Party" shall mean any Person who or which is neither a Party
nor an Affiliate of a Party.
1.21 "Update" shall mean with any update, upgrade or improvement to the
System other than Enhancements.
2. MANUFACTURE; DELIVERY; OPTION.
2.1 Generally. On or before the Initial Delivery Deadline, IRORI shall
manufacture, and promptly thereafter in accordance with the terms of this
Agreement shall deliver and install at the Facility, in accordance with the
System Specifications and the terms of this Agreement, one System (the "Initial
System"). During the period between the Effective Date and the date on which the
Initial System is delivered to the Facility, IRORI shall use its best commercial
efforts to diligently fulfill its obligations under this Agreement and to
satisfy each Development Milestone in a timely and expeditious manner and by the
target completion date set forth on Exhibit A with respect to such Development
Milestone.
2.2 Satisfaction of Development Milestones, etc.; Acceptance; Rejection.
(a) (i) IRORI shall give RPR notice promptly after IRORI
believes that it has satisfied each Development Milestone with respect to the
Initial System. For a period of *** (a "Testing Period") after the date of each
such notice, RPR shall have the right to test the Initial System, as it then
exists, at IRORI's site to verify that such Development Milestone has been
satisfied (using the Development Milestone Criteria). RPR shall use reasonable
efforts to expedite the performance of such testing.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 9
(ii) If, upon the expiration of any Testing Period, RPR
has failed to notify IRORI that such Development Milestone has not been
satisfied, then such Development Milestone shall be deemed to have been
satisfied.
(iii) If such testing indicates that such Development
Milestone has not been satisfied, then prior to the expiration of the Testing
Period, RPR shall notify IRORI of such non-satisfaction in sufficient detail to
allow IRORI to attempt to remedy it. During the *** period following receipt of
any such notice, IRORI shall use its best commercial efforts to satisfy such
Development Milestone. If RPR reasonably determines, within *** after such ***
period, that such Development Milestone still has not been satisfied, then RPR
shall be excused temporarily from its obligation to make the payment of the
Initial System Purchase Price that pertains to such Development Milestone under
Section 4.2, until such Development Milestone has been achieved. If RPR has
failed to notify IRORI that such Development Milestone has not been satisfied
prior to the expiration of such *** period, then such Development Milestone
shall be deemed to have been satisfied.
(b) (i) On or before the Initial Delivery Deadline, IRORI shall
manufacture the Initial System and have it ready at IRORI's factory for testing
pursuant to this Section 2.2(b). IRORI shall give RPR notice (a "Readiness
Notice") promptly after IRORI believes that the Initial System has been
completed and is ready for delivery. RPR shall have the right, as promptly as
possible after the date of each Readiness Notice, and in any event not more than
*** after the date of such notice, to test the Initial System to verify that the
Initial System conforms to the System Specifications (using testing protocols
developed by the Development Committee).
(ii) If, prior to the expiration of such *** period, RPR
has failed to notify IRORI that the Initial System does not conform to the
System Specifications, then the Initial System shall be prepared for delivery
pursuant to Section 2.3.
(iii) If such testing indicates that the Initial System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Initial System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Initial System
still does not conform to the System Specifications, then RPR shall be entitled
to reject the Initial System by notice to IRORI, in addition to any other rights
RPR may have under this Agreement, at law or in equity. If RPR has failed to
notify IRORI that the Initial System does not conform to the System
Specifications upon the expiration of such *** period, then the Initial System
shall be prepared for delivery pursuant to Section 2.3.
(c) Notwithstanding Section 14.15, any dispute arising between
the Parties as to whether a Development Milestone has been satisfied or the
Initial System or the Second System (as defined below) conforms to the System
Specifications shall be determined in accordance with Section 3.4.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 10
2.3 Delivery; Installation.
(a) Before *** , RPR shall notify IRORI of the location of the
Facility and of any special delivery instructions. The Parties shall cooperate
in coordinating the delivery and installation of the Initial System at the
Facility. IRORI shall install the Initial System at the Facility in accordance
with RPR's reasonable instructions and the System Specifications.
(b) (i) RPR shall have the right, as promptly as possible after
installation of the Initial System but in any event not more than *** after
IRORI's installation of the Initial System at the Facility, to verify that the
Initial System continues to conform to the System Specifications. To the extent
it does not, IRORI shall promptly bring the Initial System into such conformity.
(ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Initial System does not continue to conform to
the System Specifications, then the Initial System shall be deemed to continue
to conform to the System Specifications, and RPR shall be deemed to have
accepted the Initial System.
(iii) If such testing indicates that the Initial System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Initial System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Initial System
still does not conform to the System Specifications, then RPR shall be entitled
to reject the Initial System by notice to IRORI, in addition to any other rights
RPR may have under this Agreement, at law or in equity. If RPR has failed to
notify IRORI that the Initial System does not conform to the System
Specifications upon the expiration of such *** period, then the Initial System
shall be deemed to conform to the System Specifications, and RPR shall be deemed
to have accepted the Initial System.
2.4 Identification; Passage of Title. The Initial System shall be
identified to this Agreement as of the Effective Date. IRORI shall bear the risk
of any loss, deterioration or damage until the Initial System has been delivered
and installed at the Facility in accordance with the terms of this Agreement.
Except as provided in Section 5.2, title to the Initial System shall pass to RPR
on the date of actual or deemed acceptance thereof pursuant to Section 2.3.
2.5 Option to Purchase Additional System.
(a) At any time prior to *** *** , RPR shall have an option to
purchase a second System (the "Second System"). The total purchase price (the
"Second System Purchase Price") payable by RPR in consideration of IRORI's
manufacture, delivery and installation of the Second System by IRORI, and the
Right and License with respect to the Second System that will be effective upon
the Acceptance Date with respect thereto, shall be *** ; provided, however,
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 11
that if the Acceptance Date with respect to the Second System is delayed more
than *** (such period, as may be extended as provided below, the "Grace Period")
after the Second Delivery Deadline (as defined herein), the Second System
Purchase Price shall be reduced by *** (calculated without regard to any
previous reductions) for each *** period (or portion thereof) that such
Acceptance Date is delayed beyond the Grace Period, except to the extent that
RPR causes any such delay. The Parties acknowledge and agree that RPR's testing
of the Second System in accordance with Section 2.5(c) and (e) shall not
constitute delay. If the Grace Period has not expired at the time IRORI sends a
Readiness Notice with respect to the Second System, then the Grace Period shall
be extended (or, as the case may be, any period of delay of the Acceptance Date
with respect to the Second System beyond the expiration of the Grace Period
shall be tolled), day-for-day, for each day that elapses between RPR's receipt
of any Readiness Notice and completion of RPR's inspection of the Second System
pursuant to Section 2.5(c), and then for each day of a reasonable period for
delivery and installation of the Second System at the applicable Facility, and
then for each day that elapses between IRORI's notice to RPR that the Second
System has been installed at the Facility and that it conforms to the System
Specifications and completion of RPR's inspection of the Second System pursuant
to Section 2.5(e). RPR shall notify IRORI promptly of the completion of any such
inspections.
(b) RPR may exercise such option by delivering a notice (the
"Option Exercise Notice") to IRORI. The Option Exercise Notice shall set forth
the date on which RPR expects IRORI to deliver the Second System (the "Second
Delivery Deadline"), which shall not be sooner than ***
***
Following receipt of an Option Exercise Notice, IRORI shall use its best
commercial efforts to diligently manufacture, deliver and install the Second
System in a timely and expeditious manner.
(c) (i) IRORI shall manufacture the Second System and, before
the Second Delivery Deadline, have it ready at IRORI's factory for testing
pursuant to this Section 2.5(c). IRORI shall give RPR a Readiness Notice
promptly after IRORI believes that the Second System has been completed and is
ready for delivery. RPR shall have the right, as promptly as possible after the
date of each Readiness Notice, and in any event not more than *** after the date
of such notice, to test the Second System to verify that the Second System
conforms to the System Specifications (using testing protocols developed by the
Development Committee).
(ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Second System does not conform to the System
Specifications, then the Second System shall be prepared for delivery pursuant
to Section 2.5(d).
(iii) If such testing indicates that the Second System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Second System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Second System
still does not conform to the System Specifications, then RPR shall be entitled
to reject
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<PAGE> 12
the Second System by notice to IRORI, in addition to any other rights RPR may
have under this Agreement, at law or in equity. If RPR has failed to notify
IRORI that the Second System does not conform to the System Specifications upon
the expiration of such *** period, then the Second System shall be prepared for
delivery pursuant to Section 2.5(d).
(d) Simultaneous with delivery of the Option Exercise Notice,
RPR shall notify IRORI of the location of the Facility and of any special
delivery instructions for the Second System. The Parties shall cooperate in
coordinating the delivery and installation of the Second System at the Facility.
IRORI shall install the Second System at the Facility in accordance with RPR's
reasonable instructions and the System Specifications.
(e) (i) RPR shall have the right, as promptly as possible after
installation of the Second System but in any event not more than *** after
IRORI's installation of the Second System at the Facility, to verify that the
Second System continues to conform to the System Specifications. To the extent
it does not, IRORI shall promptly bring the Second System into such conformity.
(ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Second System does not continue to conform to
the System Specifications, then the Second System shall be deemed to continue to
conform to the System Specifications, and RPR shall be deemed to have accepted
the Second System.
(iii) If such testing indicates that the Second System
does not continue to conform to the System Specifications, then prior to the
expiration of such *** period, RPR shall notify IRORI of such non-conformity in
sufficient detail to allow IRORI to attempt to remedy it. During the *** period
following receipt of any such notice, IRORI shall use its best commercial
efforts to bring the Second System into conformity with the System
Specifications. If RPR reasonably determines, within *** after such *** period,
that the Second System still does not conform to the System Specifications, then
RPR shall be entitled to reject the Second System by notice to IRORI, in
addition to any other rights RPR may have under this Agreement, at law or in
equity. If RPR has failed to notify IRORI that the Second System does not
conform to the System Specifications upon the expiration of such *** period,
then the Second System shall be deemed to conform to the System Specifications,
and RPR shall be deemed to have accepted the Second System.
(f) The Second System shall be identified to this Agreement as
of the date of the Option Exercise Notice. IRORI shall bear the risk of any
loss, deterioration or damage until the Second System has been delivered and
installed at the Facility in accordance with the terms of this Agreement. Except
as provided in Section 5.2, title to the Second System shall pass to RPR upon
the date of actual or deemed acceptance thereof pursuant to Section 2.5(e).
(g) RPR shall pay the Second System Purchase Price according to
the following schedule:
(i) *** shall be paid in conjunction with delivery of
the Option Exercise Notice;
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(ii) *** shall be paid within 45 days after the Second
System is prepared for delivery pursuant to Section 2.5(c)(ii) or (iii); and
(iii) *** shall be paid within 45 days after the
Acceptance Date of the Second System.
In the event that RPR rejects the Second System pursuant to Section 2.5(c) or
(e), RPR shall be excused from making any further payment of the Second System
Purchase Price. Such rejection shall not be exclusive of any right to terminate
this Agreement.
3. DEVELOPMENT COMMITTEE.
3.1 Members. The Parties shall establish the Development Committee (the
"Development Committee"), which shall be comprised of six members, three
representatives designated by each Party. Members of the Development Committee
may be represented at any meeting by a designee appointed by such member for
such meeting. The chairperson of the Development Committee shall be designated
annually on an alternating basis between the Parties. The initial chairperson
shall be selected by RPR. The Party not designating the chairperson shall
designate one of its representative members as secretary to the Development
Committee for such year. Each Party shall be free to change its representative
members, on notice to the other Party.
3.2 Responsibilities. The Development Committee shall be responsible
for:
(a) developing, reviewing and modifying, from time to time,
testing protocols for all Systems and Enhancements;
(b) reviewing and modifying, from time to time, the System
Specifications, Enhancement Specifications and NanoKan Specifications;
(c) developing, reviewing and modifying, from time to time,
criteria (the "Development Milestone Criteria") for determining whether each of
the Development Milestones has been satisfied; and
(d) overseeing the testing of all Systems prior to the delivery
thereof.
The Development Committee shall use its best efforts to develop the testing
protocols for the Initial System and the Development Milestone Criteria not
later than 90 days after the Effective Date.
3.3 Meetings. The Development Committee shall meet at such times and in
such places as the Parties shall agree. Meetings may also be called by either
Party, on 10 days' written notice to the other unless such notice is waived by
the Parties. The meetings shall alternate between the offices of the Parties
unless the Parties otherwise agree. The chairperson shall be responsible for
sending notices of meetings to all members. The Development Committee may also
convene or be polled or consulted from time to time by means of
telecommunications, video conferences or
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<PAGE> 14
correspondence, as deemed necessary or appropriate, so long as any decisions are
reduced to writing and signed by two representatives of each Party.
3.4 Decisions.
(a) All decisions of the Development Committee shall be made by
unanimous agreement of the members (or their designees) present in person or by
telephone at any meeting, provided that at least one representative of each
Party is present at such meeting.
(b) In the event that unanimity cannot be reached by the
Development Committee with respect to a matter that is subject to its
decision-making authority, then the matter shall be referred for further review
and resolution to the Senior Vice President-Research of RPR, or such other
similar position designated by RPR from time to time, and the Vice President,
Business Development, at IRORI, or such other similar position designated by
IRORI from time to time. Such designated officers of each Party shall use
reasonable efforts to resolve the matter within 30 days after the matter is
referred to them. If they cannot resolve the matter within 30 days, then the
matter shall be decided by the Senior Vice President-Research of RPR, or such
other similar position designated by RPR from time to time, in good faith,
giving appropriate consideration to the reasonable business, scientific and
technical feasibility concerns of IRORI.
(c) All decisions of the Development Committee or the designated
officer(s) of the Party(ies) made in accordance with the procedures set forth in
this Section 3.4 shall be final and binding upon the Parties and shall only be
appealable by either of the Parties if not made in good faith or, to the extent
applicable, with appropriate consideration of reasonable business, scientific
and technical feasibility concerns.
3.5 Term. The Development Committee shall exist for such period as
necessary to perform the responsibilities assigned to it under this Agreement.
3.6 Expenses. Each Party shall be responsible for all travel and related
costs for its representatives to attend meetings of, and otherwise participate
on, the Development Committee.
4. INITIAL SYSTEM PURCHASE PRICE; PAYMENT.
4.1 Initial System Purchase Price. The total purchase price (the
"Initial System Purchase Price") payable by RPR in consideration of IRORI's
manufacture, delivery and installation of the Initial System by IRORI, and the
Right and License with respect thereto that will be effective upon the
Acceptance Date with respect to the Initial System, shall be *** .
Notwithstanding any other provision of this Agreement, IRORI shall not be
entitled to receive any consideration beyond the amount of the Initial System
Purchase Price in connection with such manufacture, delivery and installation,
except pursuant to Section 5.4.
4.2 Payment Schedule. RPR shall pay the Initial System Purchase Price
upon the occurrence of the events set forth on Exhibit A (each such event, a
"Development Milestone") and in accordance with the progress payment schedule
set forth on Exhibit B attached. Each progress
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<PAGE> 15
payment shall be made within 30 days after the satisfaction of the relevant
Development Milestone as provided in Section 2.2, upon IRORI's submission of an
invoice therefor to RPR.
4.3 Mode of Payment; Taxes. RPR shall make all payments required under
this Agreement as directed by IRORI from time to time in U.S. Dollars. RPR shall
pay all federal, state and local sales, use, property, excise or other taxes
imposed on or with respect to the manufacture, delivery and installation of the
Systems, except taxes levied on IRORI's net income.
5. INTELLECTUAL PROPERTY; UPDATES.
5.1 Invention Ownership. IRORI shall own all inventions, processes,
improvements, works of authorship, technology, ideas, data and know-how, whether
or not entitled to patent or copyright protection, that arise from IRORI's
performance of its obligation to manufacture the System (collectively,
"Inventions"). The Parties agree that any Inventions shall not constitute "works
made for hire" under U.S. copyright law.
5.2 Title Does Not Pass; Right and License. Notwithstanding any other
provision of this Agreement, title to any Software, Inventions and other
proprietary intellectual property of IRORI adapted or incorporated into the
System, Updates (as such term is defined herein) or Enhancements (collectively,
the "IRORI Intellectual Property") shall not pass to RPR. Instead, to the extent
necessary, IRORI hereby grants RPR (effective upon the Acceptance Date with
respect to each System) a non-exclusive, paid-up worldwide right and license
during the term of this Agreement under the IRORI Intellectual Property to
operate each respective System purchased pursuant to this Agreement and exercise
its rights under this Agreement (collectively, the "Right and License"). RPR
shall not have the right to sublicense the Right and License without the prior
written consent of IRORI. RPR shall not have the right to assign the Right and
License except in connection with an assignment of all of RPR's rights and
obligations under this Agreement pursuant to, and in compliance with, Section
14.3.
5.3 Updates. For a period of *** following the Acceptance Date with
respect to each System and at no cost to RPR, IRORI shall provide and
incorporate into such System, or grant RPR a Right and License to use, as the
case may be, all Updates to such System that are developed during such period.
Following such *** period, RPR shall have the right to purchase, or to be
granted a Right and License to use, as the case may be, such Updates at IRORI's
standard commercial rates therefor. Title to all Updates that are not IRORI
Intellectual Property shall pass to RPR upon their incorporation into the
System.
5.4 Enhancements.
(a) During the term of this Agreement, IRORI shall notify RPR
promptly after the development of any Enhancement not developed for RPR pursuant
to Section 5.4(b). Any such notice shall include a copy of the applicable
Enhancement Specifications. RPR shall have the right to purchase, or to obtain a
Right and License to use, as the case may be, any or all such Enhancements. In
the event that RPR wishes to purchase any such Enhancement or such Right and
License, RPR shall notify IRORI, and IRORI shall quote RPR a price therefor (the
"Enhancement Purchase Price"). ***
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<PAGE> 16
***
*** . RPR may purchase such Enhancement or a Right and License
to use same, as the case may be, by submitting a purchase order which is in a
form mutually acceptable to the parties, to the extent that such form is not
inconsistent with the terms of this Agreement, within *** .
(b) In addition, RPR shall have the right to request, from time
to time, that IRORI develop Enhancements to meet Enhancement Specifications
proposed by RPR. IRORI shall not unreasonably refuse to develop any such
Enhancements. Promptly after any such request by RPR, the Development Committee
shall develop the Enhancement Specifications for the Enhancement. Promptly after
the Enhancement Specifications have been finalized, IRORI shall quote RPR the
Enhancement Purchase Price for the development and incorporation of such
Enhancement into the System (and, to the extent necessary a Right and License to
use same), *** , and shall provide a good faith estimate of the time IRORI will
require to develop such Enhancement. RPR may purchase such Enhancement or a
Right and License to use same, as the case may be, by submitting a purchase
order which is in a form mutually acceptable to the parties, to the extent that
such form is not inconsistent with the terms of this Agreement, within *** .
Following receipt of any such purchase order, IRORI shall use its best
commercial efforts to deliver and incorporate into the System such Enhancement
within the estimated development period.
(c) For a period of *** after IRORI's incorporation of any
Enhancement into the System, RPR shall have the right to test the System to
verify that the Enhancement conforms to the applicable Enhancement
Specifications (using the testing protocol developed by the Development
Committee). If RPR has failed to notify IRORI that the Enhancement does not
conform to the applicable Enhancement Specifications prior to the end of such
*** period, then the Enhancement shall be deemed so to conform, and RPR shall be
deemed to have accepted it.
(d) If such testing indicates that the Enhancement does not
conform to the Enhancement Specifications, then prior to the expiration of such
*** period referred to in Section 5.4(c), RPR shall notify IRORI of such
non-conformity in sufficient detail to allow IRORI to attempt to bring the
Enhancement into conformity with the applicable Enhancement Specifications.
During the 30-day period following receipt of any such notice, IRORI shall use
its best commercial efforts to bring the Enhancement into conformity with the
applicable Enhancement Specifications, and RPR shall allow IRORI's
representatives reasonable access to the System(s), during normal business
hours, for such purpose. If RPR reasonably determines, within 15 days after such
30-day period, that the Enhancement does not conform to the applicable
Enhancement Specifications, then RPR shall be entitled to reject the Enhancement
by notice to IRORI. In the event of any such rejection, IRORI shall promptly
un-install the Enhancement and refund to RPR the entire amount of price
previously paid by RPR with respect thereto. If RPR has failed to notify IRORI
that the Enhancement does not conform to the applicable Enhancement
Specifications prior to the end of such 15-day period, then the Enhancement
shall be deemed so to conform, and RPR shall be deemed to have accepted it.
(e) Title to all Enhancements (i.e., to RPR's physical copies
thereof) that are not IRORI Intellectual Property shall pass to RPR upon RPR's
acceptance thereof.
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(f) IRORI shall submit an invoice for the Enhancement Purchase
Price to RPR upon delivery and installation of an Enhancement into the System.
All invoices shall be sent to the address specified on the RPR purchase order.
Payment of such invoices shall made within 45 days after receipt of an invoice
for such payment.
5.5 Installation. The Parties shall cooperate in coordinating the
delivery and installation of any Updates or Enhancements.
5.6 Source Code.
(a) Within 180 days after the Effective Date and within 10 days
after the first day of each calendar quarter thereafter until the Source Code
Release Date (as herein defined), IRORI shall deposit with Data Securities
International (the "Escrow Agent") a copy of the most current source code and
any documentation (including drawings, blueprints and other technical
information) of and for the Software or otherwise necessary or useful for the
development, manufacture or operation of the System, all pursuant to an escrow
agreement (the "Escrow Agreement") the terms and conditions of which are
acceptable to RPR. The Escrow Agreement shall provide, among other things, that
RPR shall have access to such source code and other materials, subject to the
Right and License and the other terms and conditions of this Agreement
(including Sections 11 and 15), if RPR delivers to the Escrow Agent a Collateral
Acquisition Notice (as defined below) or if IRORI or any of its Affiliates
becomes the subject of any voluntary or involuntary proceeding, under state or
federal law, in the nature of bankruptcy, receivership or assignment for the
benefit of creditors which is not dismissed within 60 days after the
institution, initiation or filing of such proceeding.
***
***
***
***
***
***
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Notwithstanding any other provision of this Agreement, RPR's
rights under this Section 5.6(b) shall terminate upon any assignment of its
rights and obligations under this Agreement to a Third Party.
6. SUPPORT; TRAINING.
6.1 Support and Maintenance. During the *** period following the
Acceptance Date with respect to each System, IRORI shall provide RPR with
customer and technical support in connection with RPR's use of such System, and
maintenance of such System, at no additional cost to RPR. After such *** period
and during the remainder of the term of this Agreement, IRORI shall provide RPR
with customer and technical support in connection with RPR's use of such
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<PAGE> 18
System, and maintenance of such System, at IRORI's published commercial rates
therefor. Such support and maintenance shall include critical bug fixes,
reasonable assistance via telephone and fax, dial in via modem assistance,
receipt of any newsletter or other customer publications put out by IRORI and
on-site support.
6.2 Training. For a period of *** after the Acceptance Date with respect
to each System, and for a period of *** following the installation of any major
Update or RPR's acceptance of any Enhancement, IRORI shall provide training in
the operation and maintenance thereof to RPR's employees at the Facility, at no
additional cost to RPR. RPR shall be responsible for all per diem expenses
incurred by its employees in connection with any such training. The Parties
shall cooperate in the scheduling of all such training.
7. SUPPLY AND PURCHASE.
7.1 Initial Obligations.
(a) On the Acceptance Date with respect to the Initial System,
RPR automatically shall be deemed to have ordered from IRORI an aggregate of ***
NanoKans, at a price of *** each, and IRORI shall be entitled to submit to RPR
an invoice therefor, in accordance with Section 7.8(a).
(b) Between the Acceptance Date with respect to the Initial
System and the second Anniversary of such Acceptance Date, RPR shall order from
IRORI an aggregate of *** additional NanoKans, at a price of *** each. This is a
take-or-pay.
7.2 Requirements.
(a) After RPR has ordered an aggregate of *** NanoKans pursuant
to Section 7.1, RPR shall purchase from IRORI, and IRORI shall supply to RPR,
NanoKans representing 100% of RPR's requirements for microreactors for solid
phase synthesis for use with the Systems. ***
***
***
***. If IRORI has not supplied NanoKans to any Third Party within such 12-month
period, then such price shall be $1.00 per NanoKan, subject to adjustment
commencing on January 1, 2001 (and on each January 1 thereafter) to reflect the
aggregate change, if any, in the Consumer Price Index (All Consumers, All Urban
Areas), published by the U.S. Department of Labor, during the period commencing
on the immediately preceding January 1.
(b) At any time following the seventh anniversary of the
Acceptance Date with respect to the Initial System, RPR shall have the right to
terminate its obligations under Section 7.2(a), or from time to time to reduce
the percentage of RPR's requirements for NanoKans that it is obligated to
purchase thereunder, by giving 180 days' prior notice to IRORI.
7.3 Orders. Except as set forth in Section 7.1(a), RPR shall place
orders for NanoKans with IRORI, setting forth trade units, delivery dates and
shipping instructions with respect to each
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<PAGE> 19
shipment, from time to time. IRORI shall accept such orders from RPR. RPR's
orders shall be made pursuant to a purchase order which is in a form mutually
acceptable to the parties, to the extent that such form is not inconsistent with
the terms of this Agreement.
7.4 Delivery. IRORI shall deliver all NanoKans ordered by RPR pursuant
to Section 7.1(b), 7.3 or 7.7 within *** of IRORI's receipt of RPR's purchase
order. All NanoKans delivered pursuant to this Agreement shall be suitably
packed for shipment by IRORI and marked for shipment to the destination point
indicated in RPR's purchase order. All NanoKans will be delivered F.O.B. the
shipping point designated by IRORI. The shipping packaging shall be in
accordance with good commercial practice with respect to protection of the
NanoKans during transportation. All shipping and insurance costs, as well as any
special packaging expenses, shall be paid by RPR.
7.5 Quality Control. IRORI shall conduct quality control testing of the
NanoKans prior to shipment in accordance with its customary quality control
procedures. IRORI shall retain records pertaining to such testing.
7.6 Acceptance; Rejection.
(a) RPR may test or cause to be tested the NanoKans supplied by
IRORI, using a random sampling methodology and otherwise in accordance with
RPR's customary procedures, within *** of receipt thereof by RPR or its
designee. RPR or its designee shall have the right to reject any shipment of
NanoKans made to it under this Agreement which does not meet the NanoKan
Specifications when received by RPR. All claims by RPR of non-conforming
NanoKans shall be deemed waived unless made by RPR in writing and received by
IRORI within such *** period. At IRORI's request and expense, RPR shall return
to IRORI or destroy, in accordance with IRORI's instructions, any rejected
shipment of NanoKans.
(b) In the event that the parties are unable to agree as to
whether a shipment of NanoKans supplied by IRORI hereunder meet the NanoKan
Specifications, such question shall be submitted to an independent quality
control laboratory as the Parties may mutually agree upon. The findings of such
independent laboratory shall be binding upon the Parties, absent manifest error.
The cost of the independent quality control laboratory shall be borne by the
Party whose results are shown by such laboratory to have been incorrect.
(c) In the event that IRORI concedes or the independent quality
control laboratory finds that a shipment of NanoKans does not comply with the
NanoKan Specifications, IRORI will promptly, to the extent such shipment has not
been replaced pursuant to Section 7.7, re-manufacture and deliver to RPR the
same quantity of NanoKans as contained in the shipment in question.
7.7 Interim Replacement. During the pendency of any dispute concerning
the conformity of a shipment of NanoKans to the NanoKan Specifications, IRORI
shall promptly replace the shipment under dispute, at the request of RPR. Such
replacement NanoKans shall be ordered in accordance with Section 7.3 and shall
be invoiced by IRORI and paid for by RPR at the same price as the rejected
shipment of NanoKans was invoiced.
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<PAGE> 20
7.8 Invoicing; Payment.
(a) IRORI shall submit an invoice to RPR upon shipment of
NanoKans ordered by RPR hereunder, whether pursuant to Section 7.1, 7.3 or 7.7.
All invoices shall be sent to the address specified on the RPR purchase order,
and each such invoice shall include any insurance, taxes or other costs incident
to the purchase or shipment initially paid by IRORI but to be borne by RPR
hereunder.
(b) Payment of such invoices shall made within 45 days after
receipt of an invoice for such payment; provided, however, that RPR shall not be
required to pay any invoice with respect to any shipment of NanoKans that fails
to meet the NanoKan Specifications, but RPR shall be obligated to pay in full
for any rejected shipment of NanoKans that is subsequently determined to meet
the NanoKan Specifications; and provided, further, that the running of such
45-day period shall be tolled during the pendency of any dispute concerning the
conformity of a shipment of NanoKans to the NanoKan Specifications. In the event
that RPR pays for a shipment of NanoKans and subsequently rejects such shipment
in accordance with the terms of this Agreement, RPR shall be entitled to a
refund or credit equal to the amount paid with respect to such rejected
shipment.
7.9 Allocation.
(a) Subject to Section 7.9(b), in the event that IRORI is unable
to supply all of RPR's requirements for NanoKans in accordance with Section 7.4,
due to force majeure or otherwise, IRORI shall allocate *** of its available
NanoKans to RPR until IRORI has supplied all such NanoKans.
(b) The Parties acknowledge and agree that IRORI has entered
into a relationship with another strategic partner (the "Other Partner"). If, at
any time when IRORI is unable to supply all of RPR's requirements for NanoKans,
IRORI's relationship with the Other Partner is in effect, then IRORI shall
allocate *** of its available NanoKans between RPR and the Other Partner, in
proportion to the quantity of NanoKans for which each of them has orders pending
at such time. IRORI shall promptly disclose to RPR the identity of the Other
Partner, if RPR so requests, but in that case IRORI shall have the right to
disclose to the Other Partner the existence (but not the specific financial
terms) of RPR's relationship with IRORI under this Agreement. In any event, in
connection with any allocation under this Section 7.9(b), IRORI shall notify RPR
promptly of the identity of the Other Partner, if IRORI has not already done so.
7.10 Right to Manufacture.
(a) In the event of an Inability to Supply, RPR may elect
either: (i) to manufacture (or have manufactured) pursuant to Section 7.11 such
quantity of NanoKans that IRORI fails so to supply; or (ii) to assume full
responsibility for the supply of all of RPR's requirements for NanoKans under
this Agreement. For purposes of this Section 7, an "Inability to Supply" shall
mean: (X) with respect to any 60-day period, more than *** of the NanoKans to be
delivered during such period were delivered more than 30 days after the
respective delivery dates
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<PAGE> 21
therefor; or (Y) with respect to any six-month period, more than *** of the
NanoKans to be delivered during such period were delivered after the respective
delivery dates therefor, provided, in each case, that not more than *** nor
fewer than *** NanoKans were to be delivered during any 30-day period.
(b) The remedy provided in this Section 7.10 shall be in
addition to any other remedies available to RPR under this Agreement, at law or
in equity. RPR's rights under this Section 7.10 shall not be affected in any way
by its waiver or failure to take action with respect to any previous event
giving rise to such right.
7.11 RPR's Right to Manufacture. IRORI hereby grants to RPR, and RPR
hereby accepts, a license (the "Manufacturing License") under all necessary
IRORI patents and know-how to make or have made NanoKans for such of RPR's
requirements as RPR has elected pursuant to Section 7.10(a)(i) or (ii). Such
Manufacturing License shall be subject to all other terms and conditions of this
Agreement. In addition, RPR agrees not to exercise any of its rights under the
Manufacturing License except to the extent expressly permitted in Section
7.10(a). In such event: (i) IRORI shall provide to RPR (or its designee) copies
of all documentation within IRORI's control that is reasonably necessary for RPR
to manufacture (or have manufactured) NanoKans; (ii) IRORI shall provide such
technical assistance to RPR (or its designee) as is reasonably necessary to
enable RPR (or such of its Affiliates, Third Parties or designees as it may
designate) to manufacture NanoKans pursuant to the NanoKan Specifications; (iii)
RPR shall be relieved of its obligation to purchase such quantities of NanoKans
from IRORI, to the extent that RPR has the right to exercise the Manufacturing
License; and (iv) IRORI shall reasonably cooperate with RPR to establish an
alternative supply, including sources of materials. In the event that RPR has
NanoKans manufactured by a Third Party, such Third Party shall enter into a
confidentiality agreement with IRORI to protect against the unauthorized use and
disclosure of IRORI's Confidential Information.
8. REPRESENTATIONS AND WARRANTIES; COVENANTS.
8.1 Representations and Warranties of Both Parties. Each Party
represents and warrants to the other Party that: (i) it is free to enter into
this Agreement; (ii) in so doing, it will not violate any other agreement to
which it is a party; and (iii) it has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement.
8.2 Representations and Warranties of IRORI. IRORI represents and
warrants to RPR that:
(a) IRORI shall adhere to all governmental laws and regulations
applicable to the performance of its obligations under this Agreement.
(b) IRORI shall have secured in a timely manner all permits or
licenses required in connection with the performance of its obligations under
this Agreement.
(c) Neither IRORI's manufacture, delivery, installation and sale
of the System, nor its manufacture and sale of NanoKans, nor RPR's use of the
System or NanoKans for any legal
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<PAGE> 22
purpose, shall infringe upon any U.S. or foreign patent of any Third Party and
shall not violate, conflict with or infringe upon any other rights of any Third
Party.
(d) No action, suit or claim has been initiated, or threatened
in writing, against IRORI with respect to the intellectual property necessary
for it to perform its obligations under this Agreement (including, without
limitation, the IRORI Intellectual Property in existence as of the Effective
Date), or its right to enter into and perform its obligations under this
Agreement.
(e) Each System and Enhancement shall be free from defects in
material and workmanship under normal use and service and, if operated and
maintained in accordance with IRORI's reasonable written instructions, shall
perform in accordance with the System Specifications or applicable Enhancement
Specifications, as the case may be, for a period of ***
*** .
(f) IRORI has not previously entered into or agreed to enter
into any agreements with any Third Parties, except for the Other Partner, with
respect to the manufacture, delivery and installation of any Systems or the
manufacture and supply of NanoKans.
8.3 Limited Right of Repair. In connection with any breach of the
representations and warranties of IRORI set forth in Section 8.2(e) arising
after RPR's acceptance of a System or an Enhancement, as the case may be, IRORI
shall be entitled, at its sole cost and expense, to attempt to rectify, via
repair, replacement or Update, any such breach during a reasonable period of
time (but in no event greater than 60 days) after RPR provides IRORI notice of
such breach. During any such period when IRORI is diligently attempting to
rectify any such breach (or, if IRORI succeeds in so rectifying, thereafter),
RPR shall not pursue any remedy under this Agreement or otherwise at law or in
equity with respect to such breach. The Parties acknowledge and agree that any
forbearance by RPR pursuant to the preceding sentence shall not constitute a
waiver of any of RPR's rights in connection with such breach.
8.4 Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN SECTIONS
8.1 AND 8.2, IRORI DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY EXPRESS OR IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF DESIGN, MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING OR
USAGE OF TRADE PRACTICE, WITH RESPECT TO ANY SYSTEM OR NANOKANS PURCHASED BY RPR
UNDER THIS AGREEMENT.
8.5 Covenants of RPR. Except as expressly permitted by Sections 7.10 and
7.11, RPR covenants to IRORI that RPR shall not create, or attempt to create, by
decompilation, reverse engineering or otherwise, the System or any of its
components, including without limitation the Software, or NanoKans.
9. THIRD PARTIES.
9.1 Semi-Exclusivity. During the period commencing on the Effective Date
and ending on the first anniversary of the Acceptance Date with respect to the
Initial System, IRORI shall not
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<PAGE> 23
sell, license, lease or otherwise transfer any interest in a System (or any
functionally equivalent system) to or for, or operate a System (or any
functionally equivalent system) for the benefit of, any Third Party other than
the Other Party.
9.2 Most Favored Nation.
(a) If, during the period commencing on the Effective Date and
ending on the *** with respect to the Initial System (the "Protected Period"),
IRORI sells, or otherwise conveys full or substantially full title to, a System
(or any functionally equivalent system) to any Third Party at a price less than
the Initial System Purchase Price (a "Below-Price Sale"), then the Initial
System Purchase Price shall be adjusted, whether prospectively or retroactively,
to such lower price. IRORI shall promptly notify RPR of any Below-Price Sale. If
a Below-Price Sale occurs prior to RPR's payment in full of the Initial System
Purchase Price, then RPR's remaining payments against the Initial System
Purchase Price shall be adjusted accordingly. To the extent that the amount of
such remaining payments is insufficient to realize the full adjustment to be
made pursuant to this Section 9.2, or if a Below-Price Sale occurs after RPR's
payment in full of the Initial System Purchase Price, IRORI shall refund the
difference or the amount of such adjustment, as the case may be, to RPR within
30 days after the date of IRORI's notice of such Below-Price Sale.
(b) During the Protected Period, following any adjustment of the
Initial System Purchase Price pursuant to Section 9.2(a), if and as often as
IRORI sells, or otherwise conveys full or substantially full title to, a System
(or any functionally equivalent system) to any Third Party at a price less than
the price to which the Initial System Purchase Price previously has been
adjusted, then the Initial System Purchase Price shall be further adjusted to
such lower price, in accordance with Section 9.2(a).
(c) Notwithstanding the other provisions of this Section 9.2,
the Parties acknowledge and agree that if any Third Party purchases a System for
not less than *** and subsequently purchases a second System for not less than
*** the purchase and sale of such second System shall not constitute a
Below-Price Sale.
9.3 Audit Request.
(a) Commencing on the Effective Date and until the sixth
anniversary of the Acceptance Date with respect to the Initial System, at the
request of RPR, IRORI and its Affiliates shall permit an independent certified
public accountant appointed by RPR, at reasonable times and upon reasonable
notice, to examine all relevant records and all other documents in the
possession or control of IRORI or its Affiliates as may be necessary: (i) to
verify IRORI's satisfaction of its obligations under Sections 9.1 and 9.2; or
(ii) to verify that IRORI is not in breach of its representation and warranty
under Section 8.2(f).
(b) During the term of this Agreement and for a period of three
years thereafter, at the request of RPR, IRORI and its Affiliates shall permit
an independent certified public accountant appointed by RPR, at reasonable times
and upon reasonable notice, to examine all relevant records and all other
documents in the possession or control of IRORI or its Affiliates as may be
necessary: (i) to verify IRORI's satisfaction of its obligations under Section
7.9; or (ii) in
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 24
connection with any assignment pursuant to Section 14.3(b), to verify the
correctness of any Assignment Fee charged by IRORI.
(c) Said accountant shall not disclose to RPR the identity of
any Third Party with which IRORI has a relationship. The results of any such
examination shall be made available to both Parties. RPR shall bear the full
cost of the performance of any such audit unless the results of such audit
indicate that IRORI is in default with respect to its obligations identified in
Section 9.3(a) or (b), in which event IRORI shall bear such cost.
10. INDEMNIFICATION.
10.1 Obligation to Indemnify. Subject to Section 8.3, IRORI shall
defend, indemnify and hold RPR and its Affiliates, and each of their respective
directors, officers and employees (each, an "Indemnitee"), harmless from and
against any and all claims, suits or demands for liability, damages, losses,
costs and expenses (including the costs and expenses of attorneys and other
professionals) arising out of Third Party claims or suits resulting from a
breach of IRORI's representations and warranties set forth in Section 8.2
(including those relating to intellectual property), or from any tort claims of
personal injury (including death) or property damage relating to or arising out
of RPR's use of the System and/or NanoKans in accordance with the System
Specifications and/or the NanoKan Specifications, as the case may be, and
IRORI's written instructions.
10.2 Notice. In the event that any Indemnitee is seeking indemnification
under Section 10.1, such Indemnitee shall inform IRORI of a claim as soon as
reasonably practicable after it receives notice of the claim, shall permit IRORI
to assume direction and control of the defense of the claim (including the sole
right to settle the claim at IRORI's sole discretion, provided that such
settlement does not materially adversely affect any rights of, or impose any
obligation on, the Indemnitee) with legal counsel selected by IRORI and
reasonably acceptable to RPR, and shall cooperate as requested (at the expense
of the IRORI) in the defense of the claim.
10.3 Complete Indemnification. All costs and expenses incurred by an
Indemnitee in connection with enforcement of this Section 10 shall also be
reimbursed by IRORI.
10.4 Insurance. During the term of this Agreement and for a period of 10
years thereafter, IRORI shall maintain basic comprehensive general liability and
products liability insurance (including contractual liability coverage on
IRORI's indemnification obligations under this Agreement) with respect to the
work it performs and the products it manufactures and sells under this Agreement
substantially consistent with the insurance coverage described on Exhibit C,
which insurance shall designate RPR as an additional insured and shall pay the
premiums due thereunder. The terms and conditions of such insurance policy and
any and all amendments thereto, as well as the amount insured, shall be
submitted for reasonable approval to RPR, and RPR shall receive a copy of any
such policy and amendments thereto.
10.5 Partial Limitation on IRORI Indemnity. In no event shall IRORI's
liability under this Section 10 with respect to Third Party claims or suits
resulting from a breach of IRORI's representations and warranties set forth in
Section 8.2 exceed the total Purchase Price paid by RPR under this Agreement.
<PAGE> 25
11. CONFIDENTIALITY.
11.1 Confidential Information. Except as expressly provided herein, the
Parties agree that, during the term of this Agreement and for eight years
thereafter, the receiving Party shall not publish or otherwise disclose and
shall not use for any purpose any information furnished to it by the other Party
pursuant to this Agreement which, if disclosed in tangible form, is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature or, if disclosed orally, is indicated as confidential or
proprietary in writing by the disclosing Party within a reasonable time after
such disclosure (collectively, "Confidential Information"). Notwithstanding the
foregoing, Confidential Information shall not include information that, in each
case as demonstrated by written documentation:
(a) was already known to the receiving Party, other than under
an obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving Party
by a Third Party or developed by the receiving Party without reference to any
information or materials disclosed by the disclosing Party.
11.2 Permitted Disclosures. Notwithstanding the provisions of Section
11.1, each Party may disclose the other Party's Confidential Information to the
extent such disclosure is reasonably necessary to exercise the rights granted to
it under this Agreement or to comply with applicable laws and regulations,
provided that if a Party is required to make any such disclosure of the other
Party's Confidential Information, to the extent it may legally do so, it will
give reasonable advance notice to the latter Party of such disclosure and will
use its reasonable efforts to limit the scope of such disclosure to only that
information which it is necessary to disclose and to secure confidential
treatment of such information prior to its disclosure. If the Party whose
Confidential Information is to be disclosed has not filed a patent application
with respect to such Confidential Information, it may require the other Party to
delay the proposed disclosure (to the extent the disclosing Party may legally do
so) for up to 90 days, to allow for the filing of such an application.
11.3 Remedies. Each Party shall be entitled, in addition to any other
right or remedy it may have, at law or in equity, to temporary, preliminary and
permanent injunctions, without the posting of any bond or other security,
enjoining or restraining the other Party and its Affiliates from any violation
or threatened violation of this Section 11.
12. TERM; TERMINATION.
<PAGE> 26
12.1 Term. The term of this Agreement shall commence as of the Effective
Date and shall expire upon the termination, pursuant to Section 7.2(b), of RPR's
obligation to purchase NanoKans from IRORI, unless sooner terminated in
accordance with this Section 12.
12.2 Termination by RPR. RPR shall have the right to terminate this
Agreement at any time prior to the Acceptance Date with respect to the Initial
System, upon notice to IRORI, without further obligation to IRORI except as
provided in this Section 12.2 and in Section 12.4(b). In conjunction with RPR's
giving of any such notice, RPR shall pay the next payment of the Initial System
Purchase Price that would have accrued under Section 4.2 if RPR had not
terminated this Agreement. In addition, following any such termination, IRORI
shall be entitled to retain all payments of the Initial System Purchase Price
that RPR shall have made prior to the date of any such notice, and RPR shall
remain liable to IRORI for all payments of the Initial System Purchase Price
that shall have accrued but shall not have been paid prior to the date of any
such notice.
12.3 Breach.
(a) Subject to Section 12.3(b), failure by either Party to
comply with any of the material obligations contained in this Agreement shall
entitle the other Party to give to the Party in default notice specifying the
nature of the default and requiring it to cure such default. If such default is
not cured within 30 days after the receipt of such notice (or, if such default
reasonably cannot be cured within such 30-day period, if the Party in default
does not commence and diligently continue actions to cure such default), the
notifying Party shall be entitled, without prejudice to any of its other rights
conferred on it by this Agreement and in addition to any other remedies
available to it at law or in equity, to terminate this Agreement by giving
further written notice, to take effect immediately upon delivery thereof. The
right of either Party to terminate this Agreement, as provided in this Section
12.3(a), shall not be affected in any way by its waiver or failure to take
action with respect to any previous default.
(b) Notwithstanding Section 12.3(a), RPR shall not have the
right to terminate this Agreement with respect to:
(i) Any failure of IRORI to satisfy a Development
Milestone or any failure of a System to conform to the System Specifications
until IRORI has been given an opportunity to rectify such failure, as
specifically provided in Section 2.2, 2.3 or 2.5, as the case may be, and has
failed to rectify it within the period as specifically provided in Section 2.2,
2.3 or 2.5, as the case may be -- but thereafter this Section 12.3(b)(i) shall
not prevent termination under Section 12.3(a) or other remedies under Section
12.3(c);
(ii) Any failure of an Enhancement to conform to the
applicable Enhancement Specifications;
(iii) Any alleged failure of NanoKans supplied hereunder
to conform to the NanoKan Specifications;
(iv) Any Inability to Supply;
<PAGE> 27
(v) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) arising after RPR's acceptance of a System
unless IRORI has been given an opportunity to rectify such breach, as
specifically provided in Section 8.3, and has failed to rectify it within the
period as specifically provided in Section 8.3 -- but thereafter this Section
12.3(b)(v) shall not prevent termination under Section 12.3(a) or other remedies
under Section 12.3(c); or
(vi) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) with respect to any Enhancement.
(c) Section 12.3(b) shall not limit any remedy available to RPR
at law or in equity, other than termination, for the occurrence (if not cured
during the relevant cure periods) of the matters described in Section 12.3(b).
12.4 Effect of Termination.
(a) Following the expiration of the term of this Agreement
pursuant to Section 12.1 due to the termination, pursuant to Section 7.2(b), of
RPR's obligation to purchase NanoKans from IRORI, the Right and License shall
become perpetual.
(b) Following the termination of this Agreement by RPR pursuant
to Section 12.2, RPR shall return to IRORI the Initial System, or any components
thereof, to the extent that same shall have been delivered to RPR prior to the
effective date of such termination, at RPR's sole cost and expense. Neither
Party thereafter shall have any obligation to the other, except under Section 11
and RPR's obligation to make payment of any portion of the Initial System
Purchase Price that shall have accrued as of the date of such termination, and
each Party shall return to the other all Confidential Information disclosed to
such Party by the other Party (and all copies, analyses, derivatives,
reflections and physical manifestations thereof); provided that each Party shall
have the right to retain one copy for archival purposes only.
(c) Following the termination of this Agreement by IRORI
pursuant to Section 12.3: (i) RPR shall return to IRORI all Systems and
Enhancements which it has not accepted prior to the effective date of any such
termination, at RPR's sole cost and expense; (ii) RPR shall be entitled to
retain all Systems and Enhancements which it has accepted and paid the Purchase
Price for prior to the effective date of any such termination; (iii) the Right
and License with respect to the Systems and Enhancements referred to in clause
(ii) shall become perpetual; and (iv) IRORI shall be entitled to retain all
payments of Purchase Price made by RPR prior to the effective date of such
termination.
(d) Following the termination of this Agreement by RPR pursuant
to Section 12.3: (i) RPR shall be entitled to retain all Systems and
Enhancements which have been delivered to it prior to the effective date of any
such termination, to the extent that RPR subsequently accepts and pays for same
(including by offsetting any such payment obligations against RPR's claims
against IRORI for damages); (ii) RPR shall be entitled to return to IRORI all
Systems and Enhancements which have been delivered to RPR prior to the effective
date of any such termination that RPR subsequently rejects, and IRORI shall
refund in full all payments made by RPR in respect thereof; (iii) the Right and
License with respect to the Systems and Enhancements referred to in clause (i)
shall become perpetual; and (iv) the Manufacturing License shall become
perpetual.
<PAGE> 28
12.5 Accrued Rights, Surviving Obligations.
(a) Termination, relinquishment or expiration of this Agreement
for any reason shall be without prejudice to any rights which shall have accrued
to the benefit of either Party prior to such termination, relinquishment or
expiration. Such termination, relinquishment or expiration shall not relieve
either Party from obligations which are expressly indicated to survive
termination or expiration of this Agreement.
(b) Except as provided in Section 12.4(b), all of the Parties'
rights and obligations under Sections 2.4, 2.5(f), 4.3, 5.1, 5.2, 5.4(e), the
last sentence of Section 7.1(b), 7.6, 7.7, 8, 9.3, 10, 11, 12.4, 14.1, 14.3,
14.9, 14.14, 14.15, 14.16 and 15 shall survive expiration, termination or
relinquishment of this Agreement.
13. FORCE MAJEURE.
13.1 Events of Force Majeure. Neither Party shall be held liable or
responsible to the other Party or be deemed to be in default under or in breach
of any provision of this Agreement (other than any obligation to pay money) for
failure or delay in fulfilling or performing any obligation of this Agreement
when such failure or delay is due to force majeure, and without the fault or
negligence of the Party so failing or delaying. For purposes of this Agreement,
force majeure shall be defined as causes beyond the control of the Party,
including, without limitation, acts of God; acts, regulations, or laws of any
government; war; civil commotion; destruction of production facilities or
materials by fire, flood, earthquake, explosion or storm; labor disturbances;
epidemic; and failure of public utilities or common carriers. In such event RPR
or IRORI, as the case may be, shall immediately notify the other Party of such
inability and of the period for which such inability is expected to continue.
The Party giving such notice shall thereupon be excused from such of its
obligations under this Agreement (other than any obligation to pay money) as it
is thereby disabled from performing for so long as it is so disabled and the 30
days thereafter. However, the Party giving such notice shall use all reasonable
efforts to remedy such inability as soon as reasonably possible or seek an
alternative arrangement during the period of such inability.
14. MISCELLANEOUS.
14.1 Non-Solicitation. During the period commencing on the Effective
Date and ending on the 18-month anniversary of the Acceptance Date with respect
to the Initial System (or, if RPR has ordered a Second System by such Acceptance
Date and subsequently accepts the Second System, the 18-month anniversary of the
Acceptance Date with respect to the Second System), neither Party shall solicit,
induce, encourage or attempt to induce or encourage any employee of the other
Party to terminate his or her employment with such other Party or to breach any
other obligation to such other Party.
14.2 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the Parties. No Party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
<PAGE> 29
14.3 Assignment.
(a) This Agreement may not be assigned, in whole or in part, by
IRORI without the prior written consent of RPR.
(b) RPR may assign its rights and obligations under this
Agreement to a Third Party provided that: (i) such assignment is of all of such
rights and obligations; (ii) such Third Party agrees in writing to be bound by
the terms of this Agreement as if it were a party hereto; and (iii) IRORI is
paid the applicable Assignment Fee in connection with such assignment. For
purposes of this Section 14.3(b), "Assignment Fee" shall mean: (X) *** if, on
the effective date of such assignment, IRORI has sold, licensed, leased or
otherwise disposed of any interest in a System (or any functionally equivalent
system) to or for, or operated a System (or any functionally equivalent system)
for the benefit of, *** or fewer Third Parties, and (Y) *** if, on such date,
IRORI has sold, licensed, leased or otherwise disposed of any interest in a
System (or any functionally equivalent system) to or for, or operated a System
(or any functionally equivalent system) for the benefit of, more than *** Third
Parties.
(c) Notwithstanding Sections 14.3(a) and (b), either Party may
assign its respective rights and transfer its respective duties hereunder,
without the consent of the other Party, to any assignee of all or substantially
all of its respective business or in the event of its respective merger,
consolidation or similar transaction.
(d) Any assignment not in accordance with this Section 14.3
shall be void.
14.4 Binding Effect. This Agreement shall be binding upon the successors
and permitted assigns of the Parties, and the name of a Party appearing herein
shall be deemed to include the names of such Party's successors and permitted
assigns to the extent necessary to carry out the intent of this Agreement.
14.5 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
14.6 Costs and Expenses. Except as otherwise expressly provided in this
Agreement, each Party shall bear all costs and expenses associated with the
performance of such Party's obligations under this Agreement.
14.7 Inconsistency. If there is any inconsistency between the provisions
of this Agreement and any other document passing between the Parties, the
provisions of this Agreement shall control and be determinative.
14.8 Notice. Any notice, request or other communication required or
permitted to be given under or in connection with this Agreement shall be deemed
to have been sufficiently given if in writing and personally delivered or sent
by registered or certified mail, postage prepaid (return receipt requested),
facsimile transmission (receipt verified) or express courier service (signature
*** Portions of this page have been omitted pursuant to a request for
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<PAGE> 30
required), to the Party for which such notice is intended, at the address set
forth for such Party below:
(a) In the case of RPR, to:
500 Arcola Road
Collegeville, PA 19426
Attention: General Counsel
Facsimile No.: (610) 454-3808
(b) In the case of IRORI, to:
IRORI
11149 North Torrey Pines Road
La Jolla, CA 92037-1030
Attention: President
Facsimile No.: (619) 546-3083
or to such other address for such Party as it shall have specified by like
notice to the other Party, provided that notices of a change of address shall be
effective only upon receipt thereof. If sent by facsimile transmission or
express courier service, the date of mailing or transmission shall be deemed to
be the date on which such notice or request was given. If sent by registered or
certified mail, the third business day after the date of mailing shall be deemed
to be the date on which such notice or request was given.
14.9 Use of Name. Except as otherwise provided herein, neither Party
shall have any right, express or implied, to use in any manner the name or other
designation of the other Party or any other trade name or trademark of the other
Party for any purpose.
14.10 Public Announcements. Neither Party shall make any public
announcement concerning this Agreement or the subject matter hereof without the
prior written consent of the other, which shall not be unreasonably withheld. In
the event of a required public announcement, the Party making such announcement
shall provide the other Party with a copy of the proposed text prior to such
announcement sufficiently in advance of the scheduled release of such
announcement to afford such other Party a reasonable opportunity to review and
comment upon the proposed text.
14.11 Waiver. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.
14.12 Severability. When possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be
<PAGE> 31
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement. In such event, the Parties agree
to substitute a valid and enforceable provision therefor which, as nearly as
possible, achieves the desired economic effect and mutual understanding of the
Parties under this Agreement.
14.13 Amendment. No amendment, modification or supplement of any
provisions of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.
14.14 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, without regard to its
choice of law principles.
14.15 Arbitration and Choice of Venue.
(a) Section 14.15(b) below shall apply only in the situation
where a similar dispute between IRORI and the Other Partner is being so
arbitrated and the two arbitrations can be joined to help ensure a consistent
result.
(b) Except as otherwise provided in this Agreement, any dispute
arising out of or relating to any provisions of this Agreement shall be finally
settled by arbitration to be held in San Diego, California, under the auspices
and then current commercial arbitration rules of the American Arbitration
Association. Such arbitration shall be conducted by three arbitrators appointed
according to said rules. The Parties shall instruct such arbitrators to render a
determination of any such dispute within 30 days after their appointment.
Judgment upon any award rendered may be entered in any court having
jurisdiction, or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be.
(c) Section 14.15(b) shall not prohibit a Party from seeking
injunctive relief from a court of competent jurisdiction in the event of a
breach or prospective breach of this Agreement by the other Party which would
cause irreparable harm to the first Party or under Section 11.
(d) For all disputes not described by Section 14.15(a), the
Parties agree that such dispute shall be subject to the exclusive jurisdiction
of the California State Courts in and for San Diego County, California or, in
the event of federal jurisdiction, the United States District Court for the
Southern District of California sitting in San Diego County, California; and
each Party hereby agrees to submit to the personal and exclusive jurisdiction
and venue of such courts and not to seek the transfer of any case or proceeding
out of such courts.
14.16 Limitation on Liability. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL IRORI BE LIABLE UNDER THIS
AGREEMENT FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR EXCEPTIONAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR REVENUES).
14.17 Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Parties as to the subject matter hereof and merges
all prior discussions
<PAGE> 32
and negotiations between them, and neither of the Parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein or as
duly set forth on or subsequent to the date hereof in writing and signed by a
proper and duly authorized officer or representative of the Party to be bound
thereby.
14.18 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, any one of which need not contain the signature of more
than one Party but all such counterparts taken together shall constitute one and
the same agreement.
14.19 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
15. SECURITY INTEREST.
15.1 Security Interest. As collateral security for the prompt and
complete payment and performance when due of all the obligations of IRORI to RPR
under this Agreement, including but not limited to the obligations contained in
Section 2 hereof, and in order to induce RPR to enter into this Agreement, IRORI
hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to RPR,
and hereby grants to RPR, a security interest in all of IRORI's right, title and
interest in, to and under the following collateral:
(a) the Initial System (as a work in process), and any raw materials and
inventory held by IRORI which are or which were acquired for the
purpose of or which are necessary for the completion of the Initial
System, all subject to Section 5.2 hereof;
(b) from and after RPR's delivery of the Option Exercise Notice, the
Second System (as a work in process), and any raw materials and
inventory held by IRORI which are or which were acquired for the
purpose of or which are necessary for the completion of the Second
System, all subject to Section 5.2 hereof; and
(c) all proceeds of each of the foregoing and all accessions to,
substitutions and replacements for, and rents, profits, and products
of each of the foregoing.
15.2 Further Assurances. At any time and from time to time, upon the
written request of RPR; and at the sole expense of IRORI, IRORI shall promptly
and duly execute and deliver any and all such further instruments and documents
and take such further action as RPR may reasonably deem necessary or desirable
to more perfectly evidence or perfect this security interest, including, without
limitation, facilitating the filing of UCC-1 financing statements in all
applicable jurisdictions.
15.3 Remedies. Beginning on the date on which and for the duration of
the period within which RPR is entitled to terminate this Agreement pursuant to
Section 12.3, RPR may exercise, in addition to all other rights and remedies
granted to it under this Agreement, all rights and remedies of a secured party
under the California Uniform Commercial Code. Except during any such period, RPR
may not exercise any rights or remedies of a secured party under the California
Uniform
<PAGE> 33
Commercial Code. IRORI agrees to pay all fees, costs and expenses of RPR,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies pertaining to
this security interest.
15.4 Right and License in the Event of Breach. Notwithstanding anything
in this Agreement to the contrary, IRORI hereby grants RPR, effective solely
upon delivery to IRORI by RPR of a notice that RPR has obtained fee title to the
Collateral in accordance with the California Uniform Commercial Code (a
"Collateral Acquisition Notice"), a non-exclusive, paid-up worldwide right and
license during the term of this Agreement and following termination of this
Agreement by RPR pursuant to Section 12.4, to make, have made, develop, and use
the Initial System and exercise its rights under this Agreement under the IRORI
Intellectual Property for the purpose of allowing RPR to have the Initial System
manufactured, installed and used by RPR. RPR shall have the right to sublicense
the rights granted in the preceding sentence only for the purpose of having a
Third Party manufacture, develop and install the Initial System for RPR.
Notwithstanding anything in this Agreement to the contrary, IRORI hereby grants
RPR, effective solely upon delivery to IRORI by RPR of a Collateral Acquisition
Notice, a non-exclusive, paid-up worldwide right and license during the term of
this Agreement and following termination of this Agreement by RPR pursuant to
Section 12.4, to make, have made, develop, and use the Second System and
exercise its rights under this Agreement under the IRORI Intellectual Property
for the purpose of allowing RPR to have the Second System manufactured,
installed and used by RPR. RPR shall have the right to sublicense the rights
granted in the preceding sentence only for the purpose of having a Third Party
manufacture, develop and install the Second System for RPR. However, the rights
granted in this Section 15.4 shall apply to the Second System if, and only if,
prior to the breach of this Agreement by IRORI which led to the Collateral
Acquisition Notice, RPR shall have delivered the Option Exercise Notice pursuant
to Section 2.5(b) and RPR shall have paid the portion of the Second System
Purchase Price set forth in Section 2.5(g)(i). RPR shall not have the right to
assign the Right and License except in connection with an assignment of all of
RPR's rights and obligations under this Agreement pursuant to, and in compliance
with, Section 14.3.
15.5 Termination of Security Interest and Rights. The security interest
and rights granted in this Section 15 (collectively, the "Post-Breach Rights")
shall terminate upon the occurrence of (i) if the Initial System is accepted (or
deemed accepted) by RPR prior to RPR's delivery of the Option Exercise Notice,
the acceptance (or deemed acceptance) of the Initial System or (ii) if the
Option Exercise Notice is delivered before the acceptance (or deemed acceptance)
of the Initial System, the acceptance (or deemed acceptance) of the Second
System. In either event, the Post-Breach Rights solely with respect to the
Initial System shall terminate upon the Acceptance Date of the Initial System.
<PAGE> 34
IN WITNESS WHEREOF, each of the Parties has caused this Strategic
Alliance Agreement to be executed by its duly authorized officer as of the day
and year first above written.
RHONE-POULENC RORER PHARMACEUTICALS INC.
By: /s/ John R. Leone
-------------------------------------
Name: John R. Leone
-----------------------------------
Title: Senior Vice President & G.M.
----------------------------------
IRORI
By: /s/ Riccardo Pigliucci
-------------------------------------
Name: Riccardo Pigliucci
-----------------------------------
Title: Chief Executive Officer
----------------------------------
<PAGE> 35
EXHIBIT A
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 36
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 37
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 38
EXHIBIT B
PROGRESS PAYMENT SCHEDULE
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 39
EXHIBIT C
DESCRIPTION OF INSURANCE COVERAGE
<TABLE>
<CAPTION>
Type of Coverage Primary Coverage Umbrella
---------------- ---------------- --------
<S> <C> <C>
Comprehensive General Liability (including Contractual $2,000,000* $9,000,000
Liability)
Personal & Advertising Injury $1,000,000 (incl. in above)
Products and Completed Operations $2,000,000* $9,000,000
</TABLE>
* $1,000,000 per occurrence and $2,000,000 in the aggregate.
<PAGE> 1
EXHIBIT 10.41
COMBINATORIAL CHEMISTRY AGREEMENT
BETWEEN
AXYS PHARMACEUTICALS, INC.
AND
WARNER-LAMBERT COMPANY
MAY 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS..........................................................................1
1.1 "Affiliate"...................................................................1
1.2 "Axys Compound"...............................................................1
1.3 "Axys Know-How"...............................................................1
1.4 "Axys Patents"................................................................2
1.5 "Axys Restricted Information".................................................2
1.6 "Compound"....................................................................2
1.7 "Compound Patent".............................................................2
1.8 "Confidential Information"....................................................2
1.9 "Controlled"..................................................................2
1.10 "General Screening"...........................................................2
1.11 "Information".................................................................2
1.12 "Library".....................................................................3
1.13 "Licensed Product"............................................................3
1.14 "Protocol"....................................................................3
1.15 "Scaffold"....................................................................3
1.16 "Selected Protocol"...........................................................3
1.17 "Software"....................................................................3
1.18 "Technology Committee"........................................................3
1.19 "Warner-Lambert Compound".....................................................3
2. DEVELOPMENT AND TRANSFER OF LIBRARY..................................................3
2.1 Library Synthesis.............................................................3
2.2 Selection of Protocols........................................................3
2.3 Delivery of Compounds.........................................................4
2.4 Technology Committee..........................................................4
2.5 Right to Use Compounds - Warner-Lambert.......................................5
2.6 Right to Use Compounds - Axys.................................................5
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.7 Limited Right to Select Compounds to Commercialize............................6
2.8 Most Favored Nation Regarding Protocols.......................................6
2.9 Software Modifications........................................................7
3. TECHNOLOGY TRANSFER AND LICENSE......................................................7
3.1 Transfer of Chemistry Technology..............................................7
3.2 Technology and Library License Rights.........................................7
3.3 Limited Commercial Licenses...................................................8
3.4 License Limitations...........................................................8
4. PAYMENTS.............................................................................8
4.1 Compound Purchase Prices......................................................8
4.2 Royalty on Compounds..........................................................9
5. INTELLECTUAL PROPERTY MATTERS........................................................9
5.1 Ownership.....................................................................9
5.2 Limitation on Patent Applications............................................10
5.3 Additional Licenses..........................................................10
5.4 Enforcement of Patents.......................................................11
5.5 Third Party Patent Rights....................................................11
6. CONFIDENTIALITY.....................................................................11
6.1 Confidentiality Obligations..................................................11
6.2 Press Releases...............................................................12
6.3 Publications.................................................................12
7. INDEMNIFICATION.....................................................................12
7.1 Indemnification by Warner-Lambert............................................13
7.2 Indemnification by Axys......................................................13
8. TERMINATION AND EXPIRATION..........................................................14
8.1 Term and Termination.........................................................14
8.2 Termination by Warner-Lambert for Failure to Deliver.........................14
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
8.3 Termination Upon Material Breach.............................................14
8.4 Consequences of Termination..................................................14
8.5 Accrued Rights; Surviving Obligations........................................14
8.6 Rights in Bankruptcy.........................................................14
9. MISCELLANEOUS PROVISIONS............................................................16
9.1 Relationship of the Parties..................................................16
9.2 Assignments..................................................................16
9.3 Disclaimer of Warranties.....................................................16
9.4 Representations and Warranties...............................................16
9.5 Further Actions..............................................................18
9.6 Force Majeure................................................................20
9.7 No Trademark Rights..........................................................18
9.8 Entire Agreement of the Parties; Amendments..................................18
9.9 Captions.....................................................................18
9.10 Applicable Law...............................................................18
9.11 Disputes.....................................................................18
9.12 Notices and Deliveries.......................................................19
9.13 No Consequential Damages.....................................................19
9.14 Waiver.......................................................................20
9.15 Compliance with Law..........................................................20
9.16 Severability.................................................................20
9.17 Counterparts.................................................................20
</TABLE>
iii
<PAGE> 5
COMBINATORIAL CHEMISTRY AGREEMENT
THIS COMBINATORIAL CHEMISTRY AGREEMENT (the "Agreement") is made and
entered into effective as of May 15, 1998 (the "Effective Date"), by and between
AXYS PHARMACEUTICALS, INC., a Delaware corporation having a place of business at
180 Kimball Way, South San Francisco, CA 94080 ("Axys"), and WARNER-LAMBERT
COMPANY, a Delaware corporation having a place of business at 2800 Plymouth
Road, Ann Arbor, Michigan 48105 ("Warner-Lambert"). Axys and Warner-Lambert may
be referred to herein as a "Party" or, collectively, as "Parties."
RECITALS
A. Axys has developed and owns certain technology and intellectual
property rights relating to combinatorial chemistry and the synthesis of diverse
chemistry libraries using combinatorial techniques.
B. Warner-Lambert desires to obtain from Axys a co-exclusive library
of *** compounds to be synthesized pursuant to protocols developed by Axys and
a license to use the Axys combinatorial chemistry technology and intellectual
property rights for Warner-Lambert' own internal drug discovery and development
programs.
C. Axys is willing to grant such rights to Warner-Lambert and to
synthesize and deliver to Warner-Lambert such compound library pursuant to the
following terms and conditions.
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS
1.1 "AFFILIATE" means, with respect to a Party, any individual or
entity that controls, is controlled by, or is under common control with, such
Party. For this definition, the term "control" shall refer to (a) the ownership,
directly or indirectly, of at least 50% of the voting securities or other
ownership interest of an entity, or (b) the possession, directly or indirectly,
of the power to direct the management or policies of an entity, whether through
the ownership of voting securities, by contract or otherwise.
1.2 "AXYS COMPOUND" means a Compound that has been selected by Axys
for clinical development (either by Axys or its Affiliate or licensee) and
commercialization as provided in Section 2.7, but only for so long as such
Compound is itself the subject of ongoing, diligent clinical development efforts
or, if subject to a regulatory approval, is being commercially sold, in any form
or formulation, by Axys or its Affiliate or sublicensee.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
1
<PAGE> 6
1.3 "AXYS KNOW-HOW" means Information Controlled by Axys during the
Agreement that comprises (a) the Selected Protocols, or (b) the general
combinatorial chemistry techniques proprietary to Axys relating to use of such
Selected Protocols that is necessary to enable Warner-Lambert to replenish the
Compounds in the Library and to conduct accelerated medicinal chemistry based on
the Compounds, including without limitation computational methods and
instrumentation know-how.
1.4 "AXYS PATENTS" means all patents and patent applications
Controlled by Axys during the Agreement that claim inventions which constitute
the Axys Know-How.
1.5 "AXYS RESTRICTED INFORMATION" means all confidential Information
of Axys, other than Axys Know-How and Axys Patents, that is learned by the
employees of Warner-Lambert who work at Axys as permitted under Section 3.1 at
any time they are at an Axys facility.
1.6 "COMPOUND" means any individual chemical compound within the
Library, a sample of which is provided and the structure of which is disclosed
to Warner-Lambert by Axys.
1.7 "COMPOUND PATENT" means any patent application filed by or on
behalf of Warner-Lambert and/or Axys under Section 5.2(b) that claims an Axys
Compound or a Warner-Lambert Compound and all patents issuing from such
applications, and including any reissues, reexaminations, or extensions of such
patents.
1.8 "CONFIDENTIAL INFORMATION" means the Information of a Party that
it considers proprietary and/or confidential, and that, if disclosed under this
Agreement in written, graphic or electronic form, is marked or otherwise
designated as "confidential" or "proprietary" or the equivalent and, if
disclosed orally, is characterized as "confidential" or "proprietary" by the
disclosing Party at the time of such disclosure. In addition, the Axys
Restricted Information shall be deemed to be the Confidential Information of
Axys.
1.9 "CONTROLLED" means, with respect to an item of information or
intellectual property right, possession of the ability to grant access and a
license as provided for herein under such item or right without violating the
terms of any agreement or other arrangements with or rights of any Third Party.
1.10 "GENERAL SCREENING" means use of the Library or any Compounds in
the Library in assays to screen for activity against targets in the pursuit of
the identification of lead compounds or structures in drug discovery and
development programs, where the party conducting such screening is permitted to
screen the Library or any Compounds against more than *** different targets
within a particular therapeutic area or disease or against more than a total of
*** different therapeutic areas or diseases, unless otherwise agree to in
writing by Axys and Warner-Lambert.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
2
<PAGE> 7
1.11 "INFORMATION" means information and data of any type and in any
tangible or intangible form, including without limitation inventions, practices,
methods, techniques, specifications, formulations, formulae, knowledge,
know-how, skill, experience, test data, analytical and quality control data,
stability data, results of studies and patent and other legal information or
descriptions.
1.12 "LIBRARY" means the collection of approximately *** different
chemical compounds to be synthesized by Axys and provided to Warner-Lambert
under the terms of Article 2 of this Agreement.
1.13 "LICENSED PRODUCT" means any product (including any formulation
thereof without regards to method of delivery or administration) that contains a
Warner-Lambert Compound.
1.14 "PROTOCOL" means a detailed set of combinatorial chemistry
synthetic methods and standard operating procedures designed to be used for
synthesizing a set of related compounds using combinatorial chemistry
techniques.
1.15 "SCAFFOLD" means the substructure common to a set of compounds
related by the use of a particular Protocol to synthesize such compounds.
1.16 "SELECTED PROTOCOL" means a Protocol that has been selected by
the Technology Committee pursuant to Section 2.2, which Protocol shall contain
at a minimum the enabling information outlined in Exhibit A attached hereto.
1.17 "SOFTWARE" means the proprietary software of Axys known as
IcePick(TM), in object and source code form, including improvements thereto made
during the Agreement.
1.18 "TECHNOLOGY COMMITTEE" means the committee formed by the Parties
under Section 2.4 of the Agreement.
1.19 "WARNER-LAMBERT COMPOUND" means a Compound that has been selected
by Warner-Lambert for clinical development and commercialization as provided in
Section 2.7, but only for so long as such Compound is itself the subject of
ongoing, diligent clinical development efforts or, if subject to a regulatory
approval, is being commercially sold, in any form or formulation, by
Warner-Lambert or its Affiliate or sublicensee.
2. DEVELOPMENT AND TRANSFER OF LIBRARY
2.1 LIBRARY SYNTHESIS. Commencing promptly after the Effective Date,
Axys will use commercially reasonable efforts to synthesize Compounds to be
provided to Warner-Lambert as part of the Library. Such Compounds shall be
synthesized using the Selected Protocols. The Library will contain Compounds
based on between *** different Selected Protocols. Axys will use commercially
reasonable efforts to come as close as possible to using
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
3
<PAGE> 8
*** different Selected Protocols. Axys will ensure that the Library will
contain no more than *** Compounds which are synthesized by using a
particular Selected Protocol represented in the Library (as such number may be
adjusted as provided in Section 2.8).
2.2 SELECTION OF PROTOCOLS. During the term of the Agreement,
Warner-Lambert, through the Technology Committee, shall first choose and accept
as Selected Protocols at least *** Protocols out of a total of *** Protocols
proposed by Axys. Such selection shall be made based upon review by
Warner-Lambert of the basic Scaffolds that result from the proposed Protocols.
It is understood that *** Protocols exist at Axys as of the Effective Date.
Second, the Technology Committee shall have the responsibility for choosing the
additional Selected Protocols needed to complete the Library, as follows: The
Technology Committee shall diligently review and evaluate in good faith new
proposals and ideas or plans for Scaffolds to be used to create new Protocols
that either Party proposes to be selected for development into Selected
Protocols by Axys. The Technology Committee shall attempt to reach agreement on
whether to select or reject a proposed Scaffold as soon as possible. All such
proposals for Scaffolds that are selected by the Technology Committee shall then
be investigated by Axys to determine if Axys can develop and validate a Protocol
for creating a library of compounds around such Scaffold. If Axys is able to
create and validate a Protocol based on such selected Scaffold, such Protocol
shall be deemed a "Selected Protocol" under the Agreement. If the Technology
Committee cannot reach agreement to select a proposed Scaffold promptly after it
has been proposed, or if after such selection Axys is not able after reasonable
efforts to create and validate a Protocol based on such Scaffold, then such
Scaffolds (and its related Protocol, if any) shall be deemed rejected, and each
Party then will use diligent, good faith efforts to propose to the Technology
Committee different proposals for Scaffolds for review in order for Axys to
prepare and select the additional needed Selected Protocols. The Parties agree
to work cooperatively together to select the additional needed Scaffolds for
Selected Protocols in a timely fashion to allow Axys sufficient time to complete
delivery of the Library within the schedule set forth in Section 2.3.
2.3 DELIVERY OF COMPOUNDS. Axys shall use commercially reasonable
efforts to deliver the Compounds in the Library to Warner-Lambert according to
the following schedule: *** Compounds to be delivered by the end of 1998, and
the remainder to be delivered by Axys quarterly thereafter at an annual rate of
approximately *** Compounds per year. If Axys is able to produce and deliver
the Compounds at a faster rate than contemplated above, then, if mutually agreed
with Warner-Lambert, Axys may deliver such Compounds as they become available
for delivery. The Compounds shall be delivered in 96 well plates with an 88 well
array format with approximately *** of each Compound present in the shipment,
or in such other reasonable format as is reasonably requested by Warner-Lambert,
provided that any additional cost to Axys required to prepare or ship such other
format shall be paid by Warner-Lambert. Each shipment shall be accompanied by a
confidential description of the identity and structure of each Compound in such
shipment. Accompanying each shipment will be the results of the analysis of each
Compound, performed by Axys according to the method of analysis set forth in
Exhibit B attached hereto.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE> 9
2.4 TECHNOLOGY COMMITTEE. Within thirty (30) days of the Effective
Date, Axys and Warner-Lambert will form a committee consisting of two (2)
representatives of each Party (the "Technology Committee") and shall conduct the
first meeting of such committee. The Technology Committee shall meet on a
regular basis as agreed upon by the members of the Technology Committee (but no
more than once per quarter), (a) to discuss and implement the means for an
orderly and reasonable transfer of the Axys Know-How, (b) to discuss proposals
for Scaffolds proposed by either Party for selection and to select additional
Selected Protocols for use by Axys in completing the Library, (c) to assess and
approve the diversity of the Compounds to be made under each Selected Protocol
in order to maximize the chemical diversity in the Library, and (d) to discuss
and resolve any other non-business aspects of the relationship of the Parties
under the Agreement that require attention. The Technology Committee shall act
by unanimous consent, and may meet by telephone, videoconference or in
face-to-face meetings, as agreed upon by the members of the committee. A
Chairperson shall be appointed for each meeting of the Technology Committee by
the members of the committee and shall be responsible for issuing an agenda for
the meeting, conducting and chairing the meeting and preparing the minutes for
the meeting, and such other tasks as assigned by the committee. Each Party may
change its representatives on the Technology Committee as it deems appropriate,
and may send non-voting representatives to attend committee meetings as
observers.
2.5 RIGHT TO USE COMPOUNDS - WARNER-LAMBERT. All intellectual
property rights existing as of the Effective Date and relating to the Library
and the Compounds, and any Information of Axys relating thereto, shall be and
remain the intellectual property of Axys. Subject to the terms of this
Agreement, Warner-Lambert and its Affiliates shall have the right to use the
Library and the Compounds therein solely in Warner-Lambert's and its Affiliates'
internal drug discovery, medicinal chemistry, development and commercialization
programs, and for use in research, development and commercialization programs
pursuant to collaborative research agreements with third parties, provided that,
such third party corporate partners are not permitted to use the Library or
Compounds for General Screening. Warner-Lambert shall be permitted to transfer
the Library or individual Compounds only (a) to Affiliates solely to use in such
Affiliate's internal drug discovery, development and commercialization programs,
or (b) to third party contractors or outside researchers who perform screening
in assays on behalf of Warner-Lambert or its Affiliates solely as part of
Warner-Lambert's or its Affiliates' internal or collaborative drug discovery,
development and commercialization programs as provided above in this Section and
provided that such third party contractors or outside researchers are subject to
written confidentiality agreements at least as restrictive as the provisions of
Article 6. Except as expressly permitted in the foregoing or as permitted in
Section 6.3, Warner-Lambert covenants that it and its Affiliates shall not
transfer or disclose the Library or Compounds to any third party for any
purpose. Warner-Lambert and its Affiliates may use the Information generated by
the uses of the Library or Compounds permitted above for any purpose subject to
and in compliance with the limitations in this Agreement.
2.6 RIGHT TO USE COMPOUNDS - AXYS. Axys covenants that during the
term of the Agreement, it shall not (a) provide the Library or any significant
portion thereof to any third party pharmaceutical company for use in General
Screening, or (b) provide a library of compounds synthesized using-the Selected
Protocols (but not including any Compounds) to
5
<PAGE> 10
more than a total of *** third party pharmaceutical companies for use in
General Screening. Axys and its Affiliates shall retain full rights to use the
Library and the Compounds for all internal purposes, including without
limitation General Screening, combinatorial chemistry and medicinal chemistry,
and drug discovery, development and commercialization activities of Axys and its
Affiliates. For clarity, it is understood that Axys also retains the right to
use the Library and the Compounds in screening for activity in assays for
specific targets covered by research, development or commercialization programs
pursuant to collaborative research agreements with third parties, and to provide
the Library or Compounds, or a library of compounds made using the Selected
Protocols, to third party corporate partners of Axys or its Affiliates for use
by such partner in screening for activity in specific assays for targets covered
by the research, development or commercialization program between such corporate
partner and Axys (or its Affiliate, as applicable), provided that, such third
party corporate partner is not permitted to use the Library or Compounds for
General Screening. Axys covenants that during the term of the Agreement it shall
not provide the structures for the Compounds to any third party other than a
third party to whom Axys has provided Compounds as permitted above.
2.7 LIMITED RIGHT TO SELECT COMPOUNDS TO COMMERCIALIZE. If
Warner-Lambert (or its Affiliate) determines that a particular Compound (but
excluding the Axys Compounds) has potential therapeutic or prophylactic utility
sufficient to select such Compound as a "Lead Candidate" for which
Warner-Lambert will initiate GLP toxicology studies and other significant
preclinical testing that is required to develop the data needed to submit an IND
for initiating human clinical trials on the Compound as a drug candidate, with
the intention of commercializing such Compound as a drug product, then
Warner-Lambert may give Axys notice to that effect, and such Compound shall,
unless such Compound is at the time of such notice an Axys Compound, thereafter
be deemed a "Warner-Lambert Compound" for so long as Warner-Lambert or its
Affiliate or sublicensee or assignee continues ongoing, diligent development
efforts on or, if subject to a regulatory approval, continues commercial sales
of such Compound. If such diligent efforts or such sales cease to continue with
respect to a particular Warner-Lambert Compound, then such Compound shall cease
to be a Warner-Lambert Compound and shall revert to being solely a Compound. If
Axys (or its Affiliate or licensee) determines that a particular Compound (but
excluding the Warner-Lambert Compounds) has potential therapeutic or
prophylactic utility sufficient to select such Compound for GLP toxicology
studies and other significant preclinical testing that is required to develop
the data needed to submit an IND for initiating into human clinical trials on
the Compound as a drug candidate, with the intention of commercializing such
Compound as a drug product, then Axys may give Warner-Lambert notice to that
effect, and such Compound shall, unless such Compound is at the time of such
notice a Warner-Lambert Compound, thereafter be deemed an "Axys Compound" for so
long as Axys or its Affiliate or licensee or assignee continues ongoing,
diligent development efforts on or, if subject to a regulatory approval,
continues commercial sales of such Compound. If such diligent efforts or such
sales cease to continue with respect to a particular Axys Compound, then such
Compound shall cease to be an Axys Compound and shall revert to being solely a
Compound.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
6
<PAGE> 11
2.8 MOST FAVORED NATION REGARDING PROTOCOLS. Axys covenants that if,
during the term of this Agreement, Axys agrees to provide to a third party,
pursuant to a combinatorial chemistry library agreement similar to this
Agreement, at least *** compounds based on Protocols, and such agreement
stipulates that the maximum number of such compounds per Protocol that Axys may
deliver to such third party is a number less than the maximum number of
Compounds per Selected Protocol that Axys is permitted to provide to
Warner-Lambert in the Library under Section 2. 1, then if requested by
Warner-Lambert, Axys will agree to reduce such maximum number of Compounds per
Selected Protocol (as set forth in Section 2.1) for the remaining term of the
Agreement to the same maximum number of compounds per Protocol as Axys committed
in such other agreement, provided that the total number of Compounds to be
purchased by Warner-Lambert shall remain approximately *** unless Axys and
Warner-Lambert otherwise agree in writing. This Section 2.8 shall terminate and
be of no further force or effect immediately upon completion of delivery of the
Library by Axys.
2.9 SOFTWARE MODIFICATIONS. The Technology Committee shall, on a
reasonable and acceptable time frame, review and discuss the Software to
determine if there are mutually agreeable modifications to the Software that
would serve to enhance the functionality of the Software to both Parties. The
Parties may agree to conduct such modifications cooperatively, under terms to be
agreed upon at that time.
3. TECHNOLOGY TRANSFER AND LICENSE
3.1 TRANSFER OF CHEMISTRY TECHNOLOGY. Commencing promptly after the
Effective Date, Axys will commence the transfer to Warner-Lambert on an orderly
basis, of the Axys Know-How, copies of the issued Axys Patents, and the
Software. Such transfer will be managed and coordinated by the Technology
Committee, formed as provided in Section 3.4 below. The schedule for such
transfer will be reasonable, provided that Axys will complete transfer of the
Axys Know-How relating directly to a particular Selected Protocol within ***
of the date of selection of such Selected Protocol under Section 2.2. In
addition, Warner-Lambert may provide, at its cost and expense, up to ***
Warner-Lambert scientists to work at Axys during the period of technology
transfer to assist and direct the transfer to Warner-Lambert of the Axys
Know-How; provided that access or exposure to Axys Restricted Information by the
Warner-Lambert scientists shall be subject to the provisions of Article 6, and
that such number of scientists may not exceed an average of *** per month
during such transfer period. Any such Warner-Lambert scientists that work at
Axys under the terms of this Section 3.1 shall be restricted from access to any
Axys facilities or locations other than those necessary for completing the
transfer of Axys Know-How as provided above. Further, Axys shall use reasonable
efforts to limit and restrict such Warner-Lambert scientists from access or
exposure to any Axys confidential information that is not Axys Know-How. If Axys
makes improvements to the Software during the Agreement, such improved Software
shall be provided to Warner-Lambert promptly thereafter.
3.2 TECHNOLOGY AND LIBRARY LICENSE RIGHTS.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
7
<PAGE> 12
(a) Subject to the terms of this Agreement, Axys hereby grants
Warner-Lambert the non-exclusive, worldwide, fully paid-up, perpetual (subject
to termination under Article 12) license to use and practice the Axys Know-How
and Axys Patents solely for Warner-Lambert's permitted use of the Library and
Compounds under Section 2.3, and including the right of Warner-Lambert to
synthesize the Compounds for use as permitted in Section 2.3.
(b) Subject to the terms of this Agreement, Axys hereby grants
Warner-Lambert the non-exclusive, worldwide, fully paid-up, perpetual (subject
to termination under Article 12) license to use the Software solely in
conjunction with Warner-Lambert' or its Affiliates' permitted use of the Library
under Section 2.3, and to copy the Software to the extent necessary for
conducting the foregoing permitted use of such Software.
The foregoing license rights may be sublicensed to a third party without the
prior written consent of Axys in conjunction with and in compliance with
Warner-Lambert's permitted use of the Library and Compounds under Section 2.3
and only to the extent needed to accomplish such permitted purposes, and
Warner-Lambert and its Affiliates covenant that they will not transfer or
disclose any such Axys Know-How or Software to any third party except as part of
such permitted sublicenses and only subject to limitations consistent with the
above restrictions.
3.3 LIMITED COMMERCIAL LICENSES.
(a) Subject to the terms of this Agreement, Axys hereby grants
Warner-Lambert the exclusive, worldwide, perpetual (subject to termination under
Article 12), royalty-bearing license, with the right to sublicense, under Axys'
interest in the Compound Patents solely for Warner-Lambert, its Affiliates and
sublicensees to make, have made, import, use, offer for sale and sell Licensed
Products.
(b) Subject to the terms of this Agreement, Warner-Lambert
hereby grants Axys the exclusive, worldwide, perpetual (subject to termination
under Article 12), royalty-free license, with the right to sublicense, under
Warner-Lambert' interest in the Compound Patents solely for Axys, its Affiliates
and licensees to make, have made, import, use, offer for sale and sell products
containing the Axys Compounds.
3.4 LICENSE LIMITATIONS. Warner-Lambert understands and agrees that
its rights granted in Section 3.2 under the Axys Know-How, Axys Patents, and the
Software are non-exclusive, and that Axys retains all its rights to use all such
technology, Information and intellectual property rights for its own purposes
and to license or disclose such technology, Information and intellectual
property rights to third parties without restriction, subject only to the
restrictions, and to the licenses and other rights granted Warner-Lambert, under
this Agreement. Warner-Lambert covenants that it and its Affiliates shall not
use or practice the Axys Know-How, Axys Patents and Software for any use or
purpose except as expressly permitted in Section 3.2 and 3.3(a), that it will
not grant any sublicenses to any third party under such Information or
intellectual property rights except as expressly permitted under Section 3.2 or
3.3(a), and that it will not sell or otherwise commercialize any Compound unless
it has been selected as a Warner-Lambert Compound and is sold as a Licensed
Product, but excluding from the foregoing limitation any Compound that is
discovered or synthesized by Warner-Lambert or its Affiliates
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completely independent of any activity permitted under this Agreement and
without reliance on any Axys Know-How, Axys Patents or other Axys Confidential
Information disclosed to Warner-Lambert. Warner-Lambert acknowledges that the
source code for the Software contains the valuable trade secrets of Axys, and
Warner-Lambert covenants that it and its Affiliates shall not distribute the
Software to any third party except to the extent permitted by Axys in writing.
4. PAYMENTS
4.1 COMPOUND PURCHASE PRICES. Warner-Lambert shall pay Axys a
purchase price for each Compound delivered hereunder as provided below:
(a) Warner-Lambert shall pay Axys ***
for each of the *** Compounds delivered to Warner-Lamber by Axys
under the terms of Article 2;
(b) Warner-Lambert shall pay Axys *** for
each of the next *** Compounds delivered to Warner-Lambert by
Axys under the terms of Article 2; and
(c) Warner-Lambert shall pay Axys ***
for each of the remaining *** Compounds delivered to
Warner-Lambert by Axys.
Such payments shall be made within thirty (30) days of delivery of an invoice
from Axys regarding such delivered Compounds, which invoice shall be submitted
promptly upon delivery of the Compounds by Axys under the terms of Section 2.2.
Warner-Lambert shall be responsible for payment of any sales, transfer or other
tax accessible on the sale or transfer of the Compounds, Axys Know-How, Software
or Axys Patents under the terms of this Agreement, other than taxes based upon
net income of Axys.
4.2 ROYALTY ON COMPOUNDS. Warner-Lambert shall pay Axys a royalty on
sales of Licensed Products equal to *** of the Net Sales of the Licensed
Products by Warner-Lambert, its Affiliates and sublicensees in countries where
the manufacture, use or sale of such Licensed Product (or the Warner-Lambert
Compound therein) is covered by a claim in an issued patent that claims the
composition of matter of the Compound that is an active ingredient in such
Licensed Product and for which Axys or an Axys employee or contractor is an
inventor, provided that the Compound in the Licensed Product was made using one
of the at least *** Selected Protocols proposed by Axys and selected by the
Technology Committee as provided in Section 2.2. As used herein, "Net Sales"
shall mean the gross amount received from non-affiliated customers for all
Licensed Products sold after deduction for the following items (i) trade,
quantity and cash discounts or rebates; (ii) credits, rebates, charge-back
rebates, reimbursements or similar payments granted or given to wholesalers and
other distributors, buying groups, health care insurance carriers, governmental
agencies and other institutions; (iii) credits or allowances for rejection or
return of such Licensed Product previously
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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sold; (iv) any tax, tariff, duty or other governmental charge (other than an
income tax) levied on the sale, transportation or delivery of Licensed Product
and borne by the seller thereof; (v) payments or rebates paid in connection with
state or federal Medicare, Medicaid or similar programs; (vi) any charge for
freight or insurance; and (vii) bad debt expense.
5. INTELLECTUAL PROPERTY MATTERS
5.1 OWNERSHIP. All intellectual property rights in and to the
Library, Compounds, Selected Protocols, Axys Know-How, Axys Patents, and the
Software owned or Controlled by Axys as of the Effective Date shall remain
exclusively with Axys, subject only to the license rights granted to
Warner-Lambert under Sections 2.3 and 3.2. Axys shall own the entire right,
title and interest in and to any inventions and Information, and all
intellectual property rights therein, developed solely by employees or agents of
Axys in the course of this Agreement. Warner-Lambert shall own the entire right,
title and interest in and to any inventions and Information, and all
intellectual property rights therein, developed solely by employees or agents of
Warner-Lambert in the course of this Agreement. The Parties shall own jointly
the entire right, title and interest in and to any inventions and Information,
and all intellectual property rights therein, developed jointly by employees or
agents of Axys and employees or agents of Warner-Lambert in the course of this
Agreement. Notwithstanding the foregoing, Warner-Lambert hereby grants to Axys
the right, under any rights Warner-Lambert may have or obtain in the Selected
Protocols and the Scaffolds on which they are based, if any, to use the Selected
Protocols to make, use and sell compounds for all purposes, subject to the
limitations in Section 2.6. Further, it is understood that Warner-Lambert will
own the physical samples of the Compounds provided by Axys hereunder.
5.2 LIMITATION ON PATENT APPLICATIONS.
(a) The Parties agree that each Party and its Affiliates shall
not file or prosecute any patent applications that specifically claim or
otherwise describe any Compound(s); provided that the foregoing shall not apply
with respect to any Compound(s) that is or are discovered or synthesized by
Warner-Lambert or its Affiliates completely independent of any activity
permitted under this Agreement and without reliance on any Axys Know-How, Axys
Patents or other Axys Confidential Information disclosed to Warner-Lambert. Axys
will not provide the Library to any third party without obtaining the third
party's promise, in writing, not to file or prosecute any patent applications
that specifically claim or otherwise describe any Compound(s) (except for
Compounds independently discovered or synthesized by such party), and to grant
Axys a license under any patent owned by such party that claim (either
specifically or generically) a Compound for Axys and its Affiliates and
sublicensees (including Warner-Lambert) to make, have made, import, use, offer
for sale and sell such Compound (other than patents claiming such independently
discovered Compounds).
(b) Notwithstanding subsection (a) above, a Party may file and
prosecute patent applications that specifically claim or otherwise describe a
Compound or Compounds, but only if (i) the Party has defined a preliminary
structural activity relationship around such Compound(s); (ii) the Party has
prepared and evaluated related compounds outside the Library in support of the
structural activity relationship; and (iii) the claims to or descriptions of the
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<PAGE> 15
Compound(s) are essential in order to meet best mode requirements or to protect
preferred embodiments or otherwise to support claims in such patent application.
5.3 ADDITIONAL LICENSES. Axys hereby grants to Warner-Lambert a
non-exclusive, world-wide, perpetual (subject to termination under Article 12),
fully paid-up license under any issued patents owned by Axys or its Affiliate
that claim (either specifically or generically) a Compound solely for
Warner-Lambert and its Affiliates and permitted sublicensees to make, have made,
import, and use such Compound solely for the purposes permitted in Section 2.5.
Warner-Lambert hereby grants to Axys a non-exclusive, world-wide perpetual
(subject to termination under Article 12), fully paid-up license, with right to
sublicense, under issued patents owned by Warner-Lambert or its Affiliate that
claim (either specifically or generically) a Compound solely for Axys and its
Affiliates and sublicensees to make, have made, import, use, offer for sale and
sell such Compound as permitted in Section 2.6, but excluding from the foregoing
license any Warner-Lambert patent claiming a Compound that is discovered or
synthesized by Warner-Lambert or its Affiliates completely independent of any
activity permitted under this Agreement and without reliance on any Axys
Know-How, Axys Patents or other Axys Confidential Information disclosed to
Warner-Lambert.
5.4 ENFORCEMENT OF PATENTS. If Warner-Lambert becomes aware of any
actions of a third party that it considers infringing upon any Axys Patent, it
shall notify Axys and provide all evidence of such infringement that is
reasonably available. Axys shall have the sole and exclusive right, at its own
expense, to attempt to terminate such infringement by commercially appropriate
steps, including suit. Warner-Lambert shall provide reasonable assistance to
Axys in enforcing the Axys Patents, at Axys's request and expense, including
providing access to relevant documents and other evidence and making its
employees available. Any amounts recovered by Axys, whether by settlement or
judgment, shall be retained by Axys.
5.5 THIRD PARTY PATENT RIGHTS. If any warning letter or other notice
of infringement is received by a Party, or action, suit or proceeding is brought
against a Party alleging infringement of a patent right of any third party in
the manufacture, use or sale of a Compound or use of the Axys Know-How or Axys
Patents or Software as permitted herein, the Parties shall promptly discuss and
decide the best way to respond.
6. CONFIDENTIALITY
6.1 CONFIDENTIALITY OBLIGATIONS. Each Party agrees that, for the term
of this Agreement and for five (5) years thereafter, such Party shall keep, and
shall ensure that its officers, directors, employees and agents keep, completely
confidential and shall not publish or otherwise disclose and shall not use for
any purpose except as expressly permitted hereunder any Confidential Information
furnished to it by the other Party pursuant to this Agreement; except that the
foregoing obligations shall not apply to any Information to the extent that it
can be established by such receiving Party that such Information:
(a) was already known to the receiving Party or any of its
Affiliates, other than pursuant to an obligation of confidentiality owed to the
disclosing Party, at the time of disclosure;
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(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving Party
or its Affiliates by a Third Party other than in contravention of a
confidentiality obligation of such Third Party to the disclosing Party; or
(e) was developed or discovered by employees of the receiving
Party or its Affiliates who had no access to the Confidential Information of the
disclosing Party.
Notwithstanding the foregoing, Warner-Lambert shall not use for any
purpose the Axys Restricted Information. Further, each Party may disclose the
other's Confidential Information only to the extent such disclosure is necessary
in prosecuting or defending litigation or complying with applicable governmental
laws or regulations, provided that if a Party is required to make any such
disclosure of the other Party's Confidential Information, it will, whenever
reasonably possible, give advance notice to the latter Party of such disclosure
requirement, will cooperate with the other Party in its efforts to secure
confidential treatment of such Information prior to its disclosure (whether
through protective orders or confidentiality agreements or otherwise), and will
use reasonable efforts to limit the extent of such disclosure and, if requested
by the other Party because of an inability of such other Party to seek
confidential treatment, to secure confidential treatment of such Information
prior to its disclosure (whether through protective orders or confidentiality
agreements or otherwise).
6.2 PRESS RELEASES. Except as required by law or in accordance with
Section 6.3, neither Party shall have the right to make any public announcements
concerning this Agreement or the subject matter hereof without the prior written
consent of the other, which shall not be unreasonably withheld. Notwithstanding
the foregoing, the Parties agree that (a) each Party may make public disclosures
regarding Compounds in clinical development or commercialization; and (b) each
Party may desire or be required to issue press releases relating to the
Agreement or activities thereunder, and the Parties agree to consult with each
reasonably and in good faith with respect to the text of such press releases
(under this subsection (b)) prior to the issuance thereof, provided that a Party
may not unreasonably withhold consent to such releases. All such public
disclosures with respect to this Agreement must be accurate and comply with
applicable law and regulations. Except as set forth in Section 6.2(a) hereof, in
the event of a required or desired public announcement, such Party shall provide
the other Party with a reasonable opportunity and the right to approve the
content of such announcement prior to its being made, which approval shall not
be delayed or unreasonably withheld. Each Party agrees that any filings it makes
with the SEC describing the terms of this Agreement shall be consistent with the
prior press releases and other public disclosures of such terms.
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6.3 PUBLICATIONS. Notwithstanding the terms of Section 6.2, either
Party may publish Information that such Party discovered or developed in its
research, development or commercialization activities derived from use of the
Library or any Compound without the consent of or notice to the other Party,
provided, however, that no such publication may contain the structure of a
Compound or Information that reasonably may be interpreted to disclose the
structure of a Compound unless:
(a) the publishing Party has filed a patent application, in
compliance with the requirements of Section 5.1, that discloses or specifically
claims such Compound;
(b) such structure is in the public domain at the time of such
publication;
(c) such structure was independently discovered by employees
of the publishing Party who had no access to the Libraries, the Compounds or any
Confidential Information of the other Party; or
(d) the other Party has consented in writing to such
disclosure.
7. INDEMNIFICATION
7.1 INDEMNIFICATION BY WARNER-LAMBERT. Warner-Lambert shall
indemnify, defend and hold Axys and its agents, employees, officers and
directors (the "Axys Indemnitees") harmless from and against any and all
liability, damage, loss, cost or expense (including reasonable attorneys' fees)
arising out of Third Party claims or suits related to (a) Warner-Lambert's or
its Affiliate's negligence, willful misconduct or breach of this Agreement; or
(b) the manufacture, use or sale of Compounds or products containing Compounds
or any compound based upon or derived therefrom by Warner-Lambert and its
Affiliates, sublicensees, distributors and agents, except to the extent such
claims or suits result from the active negligence or willful misconduct of or
breach of the Agreement by any of the Axys Indemnitees or the manufacture, use
or sale to third parties of Compounds or products containing Compounds or any
compound based upon or derived therefrom by Axys and its Affiliates, other
licensees (i.e., excluding Warner-Lambert) distributors or agents. Upon the
assertion of any such claim or suit, the Axys Indemnitees shall promptly notify
Warner-Lambert thereof, and Warner-Lambert shall appoint counsel reasonably
acceptable to the Axys Indemnitees to represent the Axys Indemnitees with
respect to any claim or suit for which indemnification is sought, provided that
Warner-Lambert shall have sole control over the defense and settlement of such
claim or suit. As a condition to obtaining indemnification hereunder, the Axys
Indemnitees shall not settle or attempt to settle or defend or attempt to defend
any such claim or suit without the prior written consent of Warner-Lambert,
unless they shall have first waived their rights to indemnification hereunder;
provided that the foregoing shall in no way limit Axys' right to challenge or
defend against a claim (whether by Warner-Lambert or any third party) that the
claim or suit that is the subject of a claim for indemnification by Axys
hereunder results from the active negligence or willful misconduct of or breach
of the Agreement by any of the Axys Indemnitees.
7.2 INDEMNIFICATION BY AXYS. Axys shall indemnify, defend and hold
Warner-Lambert and its agents, employees, officers and directors (the
"Warner-Lambert Indemnitees")
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harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorney's fees) arising out of Third Party claims or
suits related to (a) Axys's negligence, willful misconduct or breach of this
Agreement, except to the extent that such claims or suits result from (i) the
manufacture, use, or sale or Compound or products containing Compounds or any
compound based upon or derived therefrom by Warner-Lambert and its Affiliates,
sublicensees, distributors and agents, or (ii) the active negligence or willful
misconduct of or breach of this Agreement by any of the Warner-Lambert
Indemnitees; or (b) the manufacture, use or sale to third parties by Axys, its
Affiliates, third party licensees, distributors or agents of Compounds or
products containing Compounds or any compound based upon or derived therefrom
(but excluding from the foregoing exception any claims or suits that relate to
use or sale of the physical samples of Compounds provided to Warner-Lambert
hereunder); or (c) personal or property damage arising during the course of
manufacture of the Compounds by Axys. Upon the assertion of any such claim or
suit, the Warner-Lambert Indemnitees shall promptly notify Axys thereof, and
Axys shall appoint counsel reasonably acceptable to the Warner-Lambert
Indemnitees to represent the Warner-Lambert Indemnitees with respect to any
claim or suit for which indemnification is sought, provided that Axys shall have
sole control over the defense and settlement of such claim or suit. As a
condition to obtaining indemnification hereunder, the Warner-Lambert Indemnitees
shall not settle or attempt to settle or defend or attempt to defend any such
claim or suit without the prior written consent of Axys, unless they shall have
first waived their rights to indemnification hereunder; provided that the
foregoing shall in no way limit Warner-Lambert's right to challenge or defend
against a claim (whether by Axys or any third party) that the claim or suit that
is the subject of a claim for indemnification by Warner-Lambert hereunder
results from the active negligence or willful misconduct of or breach of the
Agreement by any of the Warner-Lambert Indemnitees.
8. TERMINATION AND EXPIRATION
8.1 TERM AND TERMINATION. This Agreement shall commence upon the
Effective Date and, unless earlier terminated as provided herein, shall expire
on the third anniversary of the Effective Date or, if later, upon the completion
of delivery of the Library. The license and other rights granted to
Warner-Lambert under Sections 2.5, 2.7, 3.2, 3.3(a), 3.4 and 5.3 shall survive
such expiration, subject to compliance by Warner-Lambert and its Affiliates with
all limitations on the practice of such license rights set forth in such
Sections. The license rights granted to Axys under Section 3.3(b) shall survive
such expiration.
8.2 TERMINATION BY WARNER-LAMBERT FOR FAILURE TO DELIVER.
Warner-Lambert shall have the right, subject to the provisions of Section 9.11,
to terminate the Agreement upon sixty (60) days written notice if Axys has
materially failed to comply with the delivery schedule for delivering Compounds
under Section 2.3, provided that such termination shall not be effective if Axys
cures such failure prior to the end of such sixty (60) day period. The license
and other rights granted to Warner-Lambert under Sections 2.5, 2.7, 3.2, 3.3(a),
3.4 and 5.3 shall survive such termination with respect to the Compounds already
delivered and paid for by Warner-Lambert, subject to compliance by
Warner-Lambert and its Affiliates with all limitations on the practice of such
license rights set forth in such Sections. The license rights granted to Axys
under Section 3.3(b) shall survive such termination.
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8.3 TERMINATION UPON MATERIAL BREACH.
(a) Failure by a Party to comply with any of its material
obligations contained herein shall entitle the Party not in default to give to
the Party in default notice specifying the nature of the default, requiring it
to make good or otherwise cure such default, and stating its intention to
terminate if such default is not cured. If such default is not cured within
sixty (60) days after the date of such notice (or, if such default cannot be
cured within such sixty (60) day period, if the Party in default does not
commence and diligently continue actions to cure such default), the Party not in
default shall be entitled, without prejudice to any of its other rights
conferred on it by this Agreement, and in addition to any other remedies
available to it by law or in equity, to terminate this Agreement; provided,
however, that such right to terminate shall be stayed in the event that, during
such sixty (60) day period, the Party alleged to have been in default shall have
initiated dispute resolution proceedings in accordance with Section 9.11 with
respect to the alleged default, which stay shall last so long as the initiating
Party diligently and in good faith pursues the prompt resolution of such
proceedings, and provided further that if such default is by Warner-Lambert and
is limited to a default with respect to obligations as to particular Compounds,
then Axys may not terminate the entire Agreement but may terminate the
Agreement, and all the rights of Warner-Lambert, only with respect to such
Compounds.
(b) The right of a Party to terminate this Agreement, as
provided above, shall not be affected in any way by its waiver or failure to
take action with respect to any prior default. A Party may waive its right to
terminate this Agreement with respect to a particular default, provided that any
such waiver shall not constitute a waiver of, and such Party shall retain all
rights to pursue, any and all other remedies it may have at law or in equity of
such default by the other Party.
8.4 CONSEQUENCES OF TERMINATION.
(a) Upon termination of this Agreement by Warner-Lambert
pursuant to Section 8.3 for the uncured material breach of Axys, then: (i) the
license and other rights granted under Sections 2.5, 3.2, 3.3(a) and 5.3 shall
survive termination subject to compliance with all limitations in such Sections
and in Section 3.4; (ii) Axys shall promptly return all Confidential Information
of Warner-Lambert in its possession; (iii) all obligations and rights of Axys to
provide additional Compounds shall terminate; (iv) Warner-Lambert shall retain
the right to use the Compounds already delivered and paid for as permitted under
the Agreement; and (v) Warner-Lambert may retain exclusive rights to up to ***
Warner-Lambert Compounds selected under Section 2.7, regardless of whether
Warner-Lambert or its Affiliate or sublicensee complies with the obligations of
diligence or continued sales under Section 2.7 to maintain such Compounds as
Warner-Lambert Compounds.
(b) Upon termination of this Agreement by Axys pursuant to
Section 8.3, in its entirety or only as to particular Compounds, as applicable,
for the uncured material breach of Warner-Lambert, then: (i) all licenses and
other rights granted by Axys to Warner-Lambert under the Agreement, or, if
applicable, under the Agreement as to the particular Compounds so
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE> 20
terminated, shall terminate; (ii) Warner-Lambert shall return all existing
samples of the Compounds that are subject to the termination and all rights to
use such Compounds shall terminate and revert to Axys; (iii) if the entire
Agreement is terminated, all obligations of Axys to provide additional Compounds
shall terminate, and (iv) the license rights granted to Axys by Warner-Lambert
in Section 5.3 shall survive termination any such termination.
8.5 ACCRUED RIGHTS; SURVIVING OBLIGATIONS.
(a) Termination, relinquishment or expiration of this
Agreement for any reason shall be without prejudice to any rights which shall
have accrued to the benefit of a Party prior to such termination, or expiration.
Such termination, relinquishment or expiration shall not relieve a Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.
(b) Without limiting the foregoing, Sections 5.1, 5.2 and 5.4
and Articles 1, 6, 7 and 8 of this Agreement shall survive the expiration or
termination of this Agreement.
8.6 RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by Warner-Lambert or Axys are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code,
licenses of right to "intellectual property" as defined under Section 101 of the
U.S. Bankruptcy Code. The Parties agree that the Parties, as licensees of such
rights under this Agreement, shall retain and may fully exercise all of their
rights and elections under the U.S. Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy proceeding by or against
either Party under the U.S. Bankruptcy Code, the Party hereto which is not a
party to such proceeding shall be entitled to a complete duplicate of (or
complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property, and same, if not already in their
possession, shall be promptly delivered to them (i) upon any such commencement
of a bankruptcy proceeding upon their written request therefor, unless the Party
subject to such proceeding elects to continue to perform all of its obligations
under this Agreement or (ii) if not delivered under (i) above, following the
rejection of this Agreement by or on behalf of the Party subject to such
proceeding upon written request therefor by an non-subject Party.
9. MISCELLANEOUS PROVISIONS
9.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is
intended or shall be deemed to constitute a partnership, agency or
employer-employee relationship between the Parties. Neither Party shall incur
any debts or make any commitments for the other.
9.2 ASSIGNMENTS. Except as expressly provided herein, neither this
Agreement nor any interest hereunder shall be assignable, nor any other
obligation delegable, by a Party without the prior written consent of the other;
provided, however, that a Party may assign this Agreement to any Affiliate or to
any successor in interest by way of merger or sale of all or substantially all
of its assets in a manner such that the assignee shall be liable and responsible
for the performance and observance of all such Party's duties and obligations
hereunder, but provided that if such assignee is an Affiliate of the assigning
Party, such Party shall guarantee the
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performance by such Affiliate of all its obligations under the Agreement. This
Agreement shall be binding upon the successors and permitted assigns of the
Parties; provided, however, that in-the event that Axys is acquired, the Axys
Know-How and the Axys Patents shall not include any information or intellectual
property rights owned by the acquiring company as of the date of such
acquisition, unless previously licensed to Axys. Any assignment not in
accordance with this Section 9.2 shall be void.
9.3 DISCLAIMER OF WARRANTIES. THE PARTIES EXPRESSLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.
9.4 REPRESENTATIONS AND WARRANTIES.
(a) Each Party represents and warrants to the other Party
that, as of the date of this Agreement:
(i) such Party is duly organized and validly existing
under the laws of the state of its incorporation and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof;
(ii) such Party has taken all corporate action necessary
to authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement; and
(iii) this Agreement is a legal and valid obligation of
such Party, binding upon such Party and enforceable against such Party in
accordance with the terms of this Agreement, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors' rights, and subject to
general equity principles and to limitations on availability of equitable
relief, including specific performance. All consents, approvals and
authorizations from all governmental authorities or other Third Parties required
to be obtained by such Party in connection with this Agreement have been
obtained.
(iv) such Party has obtained written confidentiality
agreements from each of its employees and consultants who have access to the
Confidential Information of the other Party hereunder, whether in the form of
general confidentiality agreements from the employees obtained at the time of
commencement of such employees' employment by such Party or otherwise, which
agreements obligate such persons to maintain as confidential all confidential
information obtained by such Party in confidence from a third party.
(b) Axys represents and warrants to Warner-Lambert that as of
the date of this Agreement:
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(i) to Axys' knowledge, the Axys Patents, Axys Know-How
and the Software existing as of the Effective Date are subsisting and are not
invalid or unenforceable, in whole or in part;
(ii) it has the full right, power and authority to enter
into this Agreement and to grant the licenses granted under Article 3 hereof;
(iii) to Axys' knowledge, the Axys Patents, Axys Know-How
and the Software existing as of the Effective Date practiced as permitted herein
do not infringe on any intellectual property rights owned or controlled by any
Third Party;
(iv) the execution, delivery and performance of this
Agreement by Axys does not constitute a material breach under, and is not
precluded by the terms of, any agreement to which Axys is a party or by which
Axys is bound; and
(v) there are no claims, judgments or settlements
against or owed by Axys or pending or threatened claims or litigation relating
to the Axys Patents, Axys Know-How or the Software.
(c) Warner-Lambert represents and warrants to Axys that as of
the date of this Agreement:
(i) it has the full right, power and authority to enter
into this Agreement and to grant the licenses granted under Article 3 hereof;
(ii) the execution, delivery and performance of this
Agreement by Warner-Lambert does not constitute a material breach under, and is
not precluded by the terms of, any agreement to which Warner-Lambert is a party
or by which Warner-Lambert is bound.
9.5 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments and to do all such other acts as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
9.6 FORCE MAJEURE. The failure of a Party to perform any obligation
under this Agreement by reason of acts of God, acts of governments, riots, wars,
strikes, accidents or deficiencies in materials or transportation or other
causes of any nature (whether similar or dissimilar) beyond its control for the
duration thereof and for thirty (30) days thereafter shall not be deemed to be a
breach of this Agreement.
9.7 NO TRADEMARK RIGHTS. No right, express or implied, is granted by
this Agreement to a Party to use in any manner the name or any other trade name
or trademark of a Party in connection with the performance of this Agreement.
9.8 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement
constitutes and contains the entire understanding and agreement of the Parties
respecting the subject matter hereof and cancels and supersedes any and all
prior negotiations, correspondence,
18
<PAGE> 23
understandings and agreements between the Parties, whether oral or written,
regarding such subject matter. No waiver, modification or amendment of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.
9.9 CAPTIONS. The captions to this Agreement are for convenience
only, and are to be of no force or effect in construing or interpreting any of
the provisions of this Agreement.
9.10 APPLICABLE LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California, USA,
applicable to contracts entered into and to be performed wholly within the State
of California, excluding conflict of laws principles.
9.11 DISPUTES. In the event of any controversy or claim arising out
of, relating to or in connection with any provision of this Agreement, or the
rights or obligations of the Parties hereunder, the Parties shall try to settle
their differences amicably between themselves by referring the disputed matter
to the Chief Executive Officer of Axys and the President of Warner-Lambert
Company's Pharmaceutical Research Division for discussion and resolution. Either
Party may initiate such informal dispute resolution by sending written notice of
the dispute to the other Party, and within twenty (20) days after such notice
such representatives of the Parties shall meet for attempted resolution by good
faith negotiations. If such personnel are unable to resolve such dispute within
thirty (30) days of their first meeting of such negotiations, either Party may
seek to have such dispute resolved in any federal or state court in the United
States having jurisdiction over the dispute and the Parties.
9.12 NOTICES AND DELIVERIES. Any notice, request, delivery, approval
or consent required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been sufficiently given if delivered in
person, transmitted by telecopier (receipt verified) or by express courier
service (signature required) or five (5) days after it was sent by registered
letter, return receipt requested (or its equivalent), to the Party to which it
is directed at its address shown below or such other address as such party shall
have last given by notice to the other Parties.
If to Warner-Lambert, addressed to:
Warner-Lambert Company
2800 Plymouth Road
Ann Arbor, Michigan 48105
Attn: Vice President and Chairman
Pharmaceutical Research Division
Telecopier: (_____)
With a copy to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
19
<PAGE> 24
Attn: Vice President and General Counsel
Telecopier: (_____)
If to Axys, addressed to:
Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, CA USA 94080
Telecopier: (415) 829-1067
Attn: CEO
with a copy to:
Cooley Godward LLP
5 Palo Alto Square, 4th Floor
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Barclay James Kamb, Esq.
9.13 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY OR ANY
OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE,
including, but not limited to, loss of profits or revenue, or claims of
customers of any of them or other Third Parties for such other damages.
9.14 WAIVER. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
9.15 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to
permit a Party to export, reexport or otherwise transfer any Compound provided
under this Agreement without compliance with applicable laws.
9.16 SEVERABILITY. When possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
9.17 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, any one of which need not contain the signature of
more than one Party but all such counterparts taken together shall constitute
one and the same agreement.
20
<PAGE> 25
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
an original.
WARNER-LAMBERT COMPANY
By: /s/ Ronald M. Crasswell
--------------------------------------------------
Title: Prof. Ronald M. Crasswell Ph.D., Hon D.Sc. FRSE
Vice President and Chairman
Parke-Davis Pharmaceutical Research
Warner-Lambert Company
AXYS PHARMACEUTICALS, INC.
By: /s/ illegible
--------------------------------------------------
Title: Chairman/CEO
21
<PAGE> 26
EXHIBIT A
PROTOCOL CRITERIA
22
<PAGE> 27
1
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 28
2
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 29
3
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 30
4
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 31
5
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 32
6
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 33
7
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 34
8
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 35
9
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 36
10
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 37
EXHIBIT B
METHODS OF ANALYSIS
23
<PAGE> 38
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 39
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.43
LOAN AGREEMENT
between Novartis International AG
Schwarzwaldallee 215, 4058 Basel,
represented by the Novartis Venture Fund Lender
and Discovery Technologies AG
Gewerbestrasse 16, 4123 Allschwil Borrower
and Discovery Partners International Inc.
9640 Towne Centre Drive, San Diego, CA 92121 USA Guarantor
- --------------------------------------------------------------------------------
1. The lender grants a loan to the borrower in the amount of CHF 2'600'000.
The loan is given to finance the development of technologies for the
discovery and design of novel bio-active compounds for the
pharmaceutical and agrochemical industry, in particular for the
high-through-put-screening (HTS).
2. The loan bears interest at an annual rate of 5%.
3. The loan is granted for a fixed period of eighteen months, i.e. until
June 30, 2001.
4. The loan must be used for the purposes mentioned in section 1. The
Novartis Venture Fund will be regularly informed during the loan period.
The borrower will report semiannually. The half-year (if available) and
the annual report will be submitted, and additional information will be
given on special request of the lender.
5. In case of substantial deviations of the annual budget or the business
activity from the business plan as submitted to the Novartis Venture
Fund, the lender must be informed immediately.
6. An extraordinary termination with a termination period of six weeks by
the Novartis Venture Fund is only possible if the funds granted
according to this agreement are not used for the purposes mentioned in
section 1.
7. A termination by the borrower is possible at any time. In case of
partial termination only amounts of at least CHF 500'000 can be
terminated and repaid.
<PAGE> 2
8. This loan agreement replaces the loan agreement between the borrower and
the Novartis Venture Fund (Novartis AG), dated May 30/June 2, 1997,
which referred to a junior debt between the parties. The new loan
according to this agreement is not junior and ranks pari passu with all
other debt of the borrower.
9. The amount of the loan of CHF 2'600'000 has been transferred to the
lender according to the loan agreement mentioned in section 8 above.
10. The borrower and the Novartis Venture Fund are also parties to an
agreement on the creation of non-voting shares (participation
certificates) and options. The borrower agrees to the immediate
termination of that agreement and waves all rights according to that
agreement.
11. The Novartis Venture Fund has granted a warranty of CHF 1'000'000 for
the borrower in favour of Basler Kantonalbank. This warranty expires on
December 31, 1999 and the original warranty declaration will be handed
over to the Novartis Venture Fund.
12. The loan according to this agreement will be secured by a guarantee from
Discovery Partners International Inc., the parent company of Discovery
Technologies AG. Discovery Partners International Inc. will sign a
guarantee declaration to that effect.
13. This agreement shall be construed and interpreted according to the laws
of Switzerland. Exclusive place of jurisdiction shall be Basel
(Switzerland).
Basel, 23.12.99 Allschwil, 23. December 1999
Novartis International AG Discovery Technologies AG
/s/ illegible /s/ illegible
/s/ illegible
6
<PAGE> 1
EXHIBIT 10.44
GUARANTEE
DISCOVERY PARTNERS INTERNATIONAL INC., 9640 Towne Centre Drive, San Diego, CA,
92121 USA (DPI)
Hereby guarantees to
NOVARTIS INTERNATIONAL AG, Schwarzwaldallee 215, 4002 Basel (Novartis)
that it, DPI, will pay as a guarantor according to Article 496 of the Swiss Code
of Obligations (CO, Burgschaft) the debt of
DISCOVERY TECHNOLOGIES AG, Gewerbestrasse 16, 4123 Allschwil (Discovery).
This guarantee is valid for a maximum amount of CHF 2'600'000. - including
principal, interest and cost according to the loan agreement dated December 23,
1999 between Novartis and Discovery in the amount of CHF 2'600'000. -
This guarantee can only be called and used if the debtor Discovery has not paid
any sum due to Novartis and therefor is in default. Novartis must have served
Discovery with a reminder letter or the insolvency of Discovery must be obvious.
Novartis is entitled to ask for payment by the guarantor even before any other
collateral has been utilized.
This guarantee expires three months after the expiry of the respective loan,
i.e. on September 30, 2001, provided that Novartis has not exercised the
guarantee in written before the end of the expiry period.
This guarantee shall be construed and interpreted according to the laws of
Switzerland. Exclusive place of jurisdiction shall be Basel, Switzerland.
San Diego, December 23, 1999-
/s/ illegible, CFO
- --------------------------------------------
Discovery Partners International Inc.
<PAGE> 1
EXHIBIT 10.45
INDUSTRIAL LEASE
(SINGLE TENANT; NET)
BETWEEN
THE IRVINE COMPANY
AND
DISCOVERY PARTNERS INTERNATIONAL, INC.
<PAGE> 2
INDEX TO INDUSTRIAL LEASE
(Single Tenant; Net)
ARTICLE I. BASIC LEASE PROVISIONS
ARTICLE II. PREMISES
Section 2.1. Leased Premises.
Section 2.2. Acceptance of Premises.
Section 2.3. Building Name and Address.
Section 2.4. Landlord's Responsibilities.
ARTICLE III. TERM
Section 3.1. General.
Section 3.2. Delay in Possession.
Section 3.3. Right to Extend this Lease.
ARTICLE IV. RENT AND OPERATING EXPENSES
Section 4.1. Basic Rent.
Section 4.2. Operating Expenses.
Section 4.3. Security Deposit.
Section 4.4. Letter of Credit.
ARTICLE V. USES
Section 5.1. Use.
Section 5.2. Signs.
Section 5.3. Hazardous Materials.
ARTICLE VI. COMMON AREAS; SERVICES
Section 6.1. Utilities and Services.
Section 6.2. Operation and Maintenance of Common Areas.
Section 6.3. Use of Common Areas.
Section 6.4. Parking.
Section 6.5. Changes and Additions by Landlord.
ARTICLE VII. MAINTAINING THE PREMISES
Section 7.1. Tenant's Maintenance and Repair.
Section 7.2. Landlord's Maintenance and Repair/Tenant's "Self-Help".
Section 7.3. Alterations.
Section 7.4. Mechanic's Liens.
Section 7.5. Entry and Inspection.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
ARTICLE IX. ASSIGNMENT AND SUBLETTING
Section 9.1. Rights of Parties.
Section 9.2. Effect of Transfer.
Section 9.3. Sublease Requirements.
Section 9.4. Certain Transfers.
ARTICLE X. INSURANCE AND INDEMNITY
Section 10.1. Tenant's Insurance.
Section 10.2. Landlord's Insurance.
Section 10.3. Joint Indemnity.
Section 10.4. Landlord's Nonliability.
Section 10.5. Waiver of Subrogation.
ARTICLE XI. DAMAGE OR DESTRUCTION
Section 11.1. Restoration.
Section 11.2. Lease Governs.
ARTICLE XII. EMINENT DOMAIN
Section 12.1. Total or Partial Taking.
Section 12.2. Temporary Taking.
Section 12.3. Taking of Parking Area.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
Section 13.1. Subordination.
Section 13.2. Estoppel Certificate.
Section 13.3. Financials.
ARTICLE XIV. DEFAULTS AND REMEDIES
Section 14.1. Tenant's Defaults.
Section 14.2. Landlord's Remedies.
(i)
<PAGE> 3
Section 14.3. Late Payments.
Section 14.4. Right of Landlord to Perform.
Section 14.5. Default by Landlord.
Section 14.6. Expenses and Legal Fees.
Section 14.7. Waiver of Jury Trial.
Section 14.8. Satisfaction of Judgment.
Section 14.9. Limitation of Actions Against Landlord.
ARTICLE XV. END OF TERM
Section 15.1. Holding Over.
Section 15.2. Merger on Termination.
Section 15.3. Surrender of Premises; Removal of Property.
ARTICLE XVI. PAYMENTS AND NOTICES
ARTICLE XVII. RULES AND REGULATIONS
ARTICLE XVIII. BROKER'S COMMISSION
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
ARTICLE XX. INTERPRETATION
Section 20.1. Gender and Number.
Section 20.2. Headings.
Section 20.3. Joint and Several Liability.
Section 20.4. Successors.
Section 20.5. Time of Essence.
Section 20.6. Controlling Law.
Section 20.7. Severability.
Section 20.8. Waiver and Cumulative Remedies.
Section 20.9. Inability to Perform.
Section 20.10. Entire Agreement.
Section 20.11. Quiet Enjoyment.
Section 20.12. Survival.
ARTICLE XXI. EXECUTION AND RECORDING
Section 21.1. Counterparts.
Section 21.2. Corporate and Partnership Authority.
Section 21.3. Execution of Lease; No Option or Offer.
Section 21.4. Recording.
Section 21.5. Amendments.
Section 21.6. Executed Copy.
Section 21.7. Attachments.
ARTICLE XXII. MISCELLANEOUS
Section 22.1. Nondisclosure of Lease Terms.
Section 22.2. Guaranty.
Section 22.3. Changes Requested by Lender.
Section 22.4. Mortgagee Protection.
Section 22.5. Covenants and Conditions.
Section 22.6. Security Measures.
Section 22.7. JAMS
EXHIBITS
Exhibit A Description of the Premises
Exhibit B Environmental Questionnaire
Exhibit C Landlord's Disclosures
Exhibit D Insurance Requirements
Exhibit E Rules and Regulations
Exhibit F Irrevocable Standby Letter of Credit
Exhibit X Work Letter
Exhibit X-1 Outline Specifications
Exhibit Project Site Plan
(ii)
<PAGE> 4
INDUSTRIAL LEASE
(SINGLE TENANT; NET)
THIS LEASE is made as of the 17th day of February, 1999, by and between
THE IRVINE COMPANY, hereafter called "Landlord," and DISCOVERY PARTNERS
INTERNATIONAL, INC., a California corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Premises: The Premises are more particularly described in Section 2.1,
and include all of the floor area within the building located at 9640
Towne Center Drive, San Diego, CA 92121
2. Project Description: Eastgate Technology Park
3. Use of Premises: General office, light assembly, research & development
and laboratory consistent with SR zoning
4. Estimated Commencement Date: July 1, 1999
5. Lease Term: Eighty-four (84) months, plus such additional days as may be
required to cause this Lease to terminate on the final day of the
calendar month.
6. Basic Rent: Fifty Thousand One Hundred Eighty-Seven-Dollars ($50,187.00)
per month, based on $1.45 per rentable square foot.
Basic Rent is subject to adjustment as follows:
Commencing on the first day of the thirteenth (13th) month of the Term,
the Basic Rent shall be Fifty One Thousand Five Hundred Seventy-Two
Dollars ($51,572.00) per month, based on $1.49 per rentable square foot.
Commencing on the first day of the twenty-fifth (25th) month of the
Term, the Basic Rent shall be Fifty Two Thousand Nine Hundred Fifty-Six
Dollars ($52,956.00) per month, based on $1.53 per rentable square foot.
Commencing on the first day of the thirty-seventh (37th) month of the
Term, the Basic Rent shall be Fifty Four Thousand Three Hundred
Forty-One Dollars ($54,341.00) per month, based on $1.57 per rentable
square foot.
Commencing on the first day of the forty-ninth (49th) month of the Term,
the Basic Rent shall be Fifty Five Thousand Seven Hundred Twenty-Five
Dollars ($55,725.00) per month, based on $1.61 per rentable square foot.
Commencing on the first day of the sixty-first (61st) month of the Term,
the Basic Rent shall be Fifty Seven Thousand One Hundred Ten Dollars
($57,110.00) per month, based on $1.65 per rentable square foot.
Commencing on the first day of the seventy-third (73rd) month of the
Term, the Basic Rent shall be Fifty Eight Thousand Four Hundred
Ninety-Four Dollars ($58,494.00) per month, based on $1.69 per rentable
square foot.
7. Guarantor(s): None
8. Floor Area of Premises: approximately 34,612 rentable square feet
9. Security Deposit: $64,343.00 (See Section 4.3)
10. Broker(s): Irving Hughes Group/CB Richard Ellis
11. Additional Insureds: Insignia\ESG of California, Inc.
1
<PAGE> 5
12. Address for Payments and Notices:
LANDLORD TENANT
INSIGNIA\ESG OF CALIFORNIA, INC. DISCOVERY PARTNERS INTERNATIONAL, INC.
1 Ada, Suite 270 9640 Towne Centre Drive
Irvine, CA 92618 San Diego, CA 92121
With a copy of notices to: With a copy of notices to:
IRVINE INDUSTRIAL COMPANY
P.O. Box 6370 THE IRVING HUGHES GROUP, INC.
Newport Beach, CA 92658-6370 501 West Broadway, Suite 2020
Attn: Vice President, San Diego, CA 92101
Industrial Operations Attn: David B. Marino, Executive
Vice President
and to:
BROBECK, PHLEGER & HARRISON LLP
550 West "C" Street, Suite 1200
San Diego, CA 92101
Attn: W. Scott Biel, Esq.
13. Tenant's Liability Insurance Requirement: $2,000,000.00
14. Vehicle Parking Spaces: One Hundred Thirty-Six (136) spaces within the
Common Area of the Project based on four (4) spaces per 1,000 rentable
square feet of the Premises area.
15. Plan Approval Date: February 17, 1999
2
<PAGE> 6
ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant
leases from Landlord the premises shown in Exhibit A (the "Premises"), including
the building identified in Item 1 of the Basic Lease Provisions (which together
with the underlying real property, is called the "Building"), and containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions.
The Premises is a portion of the project shown in Exhibit Y (the "Project").
Landlord shall have no right to relocate Tenant from the Premises at any time
during the Term of this Lease or any extension.
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that, except as
expressly provided in this Lease, neither Landlord nor any representative of
Landlord has made any representation or warranty with respect to the Premises or
the Building or the suitability or fitness of either for any purpose, including
without limitation any representations or warranties regarding zoning or other
land use matters, and that neither Landlord nor any representative of Landlord
has made any representations or warranties regarding (i) what other tenants or
uses may be permitted or intended in the Building and the Project, or (ii) any
exclusivity of use by Tenant with respect to its permitted use of the Premises
as set forth in Item 3 of the Basic Lease Provisions. Tenant further
acknowledges that neither Landlord nor any representative of Landlord has agreed
to undertake any alterations or additions or construct any improvements to the
Premises except as expressly provided in this Lease. The taking of possession or
use of the Premises by Tenant for any purpose other than construction shall
conclusively establish that the Premises and the Building were in satisfactory
condition and in conformity with the provisions of this Lease in all respects,
except for (i) those matters which Tenant shall have brought to Landlord's
attention on a written punch list, which list shall be limited to any items
required to be accomplished by Landlord under the Work Letter attached as
Exhibit X, and (ii) Landlord's other obligations specifically provided in this
Lease, including without limitation, the responsibilities contained in Section
2.4 hereof. After the Tenant Improvements to the Premises are substantially
completed (excepting punch list items) and prior to the Commencement Date,
Landlord shall cause the General Contractor to Inspect the Premises with the
Tenant's representative and complete a punch list of unfinished or incorrect
items of the Tenant Improvements. Authorized representatives for the Landlord
and Tenant shall execute said punch list to indicate their approval thereof not
later than thirty (30) days from and after the Commencement Date. The items
listed on such punch list shall be completed by the Landlord within thirty (30)
days after the approval of such punch list or as soon thereafter as reasonably
practicable. Nothing contained in this Section shall affect the commencement of
the Term or the obligation of Tenant to pay rent. Landlord shall diligently
complete all punch list items of which it is notified as provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Project
as any part of Tenant's corporate or trade name. Landlord shall have the right
to change the name, address, number or designation of the Building or Project
without liability to Tenant; provided, however, if the address of the Building
and/or the Project is changed by Landlord, Landlord agrees to provide Tenant
with no less than sixty (60) days prior written notice and to reimburse Tenant
for all expenses reasonably incurred by Tenant in conjunction with such address
change (including, without limitation, the cost of changing Tenant's stationery
and of notifying Tenant's clients and customers of Tenant's new address of the
Building and/or the Project), not to exceed Five Thousand Dollars ($5,000.00) in
the aggregate.
SECTION 2.4. LANDLORD'S RESPONSIBILITIES.
(a) Landlord shall correct, repair or replace, at Landlord's sole
cost and expense and not as a Building Cost, any failure of the structural
components of the roof, foundations, concrete subflooring, footings and
load-bearing walls of the Building. The foregoing obligation, however, shall not
apply to the extent any such failure is caused by the negligence or improper use
of such structural components by Tenant, its employees, agents, contractors,
licensees or invitees, in which case Tenant shall be responsible for the
reasonable costs of such corrections, repairs and/or replacements. The
corrections, repairs or replacements required of Landlord or of Tenant in the
preceding sentences of this Section 2.4(a) shall be made promptly following
notice from the other party.
(b) Landlord shall correct, repair or replace, at Landlord's sole
cost and expense and not as a Building Cost, any non-compliance of the Building
exterior, the Tenant Improvements and the Common Areas with all applicable
building permits and codes in effect as of the Commencement Date, including
without limitation, the provisions of Title III of the Americans With
Disabilities Act ("ADA") in effect as of the Commencement Date. Said costs of
compliance shall be Landlord's sole cost and shall not be part of Building
Costs. Landlord shall correct, repair or replace any non-compliance of the
Building exterior, the Tenant Improvements and the Common Areas, with any
revisions or amendments to the ADA in effect after the Commencement Date,
provided that the amortized cost of such repairs or replacements (amortized over
the useful life thereof using a market cost of funds reasonably determined by
Landlord) shall be included as Building Costs payable by Tenant. All other ADA
compliance issues which pertain to the Premises, including without limitation,
in connection with Tenant's construction of any alterations or other
improvements in the Premises (and any resulting ADA compliance requirements in
the Common Areas) and the operation of Tenant's business and employment
practices in the Premises, shall be the responsibility of Tenant at its sole
cost and expense. The repairs, corrections or replacements required of Landlord
or of Tenant under the foregoing provisions of this Section 2.4(b) shall be made
promptly following notice of non-compliance from any applicable governmental
agency.
(c) Landlord shall deliver the Premises to Tenant on the
Commencement Date clean and free of debris with all items of Landlord's Work,
including without limitation, the installation of the Tenant Improvements
completed in accordance with the terms of EXHIBIT X. Landlord warrants to Tenant
that the roof, plumbing, fire sprinkler system, lighting, heating, ventilation
and air conditioning systems and electrical systems in the Premises, shall be in
good operating condition on the Commencement Date and during the initial twelve
(12) months of the Term. In the event of a non-compliance with such warranty,
Landlord shall, except as otherwise provided in this
3
<PAGE> 7
Lease, promptly after receipt of written notice from Tenant setting forth the
nature and extent of such non-compliance, rectify same at Landlord's cost and
expense. Further, in connection with the construction of the shell Building and
the Tenant Improvements pursuant to the Work Letter, Landlord shall obtain
customary warranties and guaranties from the contractor(s) performing such work
and/or the manufacturers of equipment installed therein, but shall be under no
obligation to incur additional expense in order to obtain or extend such
warranties. If Tenant is required to make repairs to any component of the
Premises or any of its systems not covered by the Landlord's warranty contained
in this Section 2.4 but for which Landlord has obtained a contractor's or
manufacturer's warranty, then Landlord shall, upon request by Tenant, use its
good faith efforts to pursue its rights under any such warranties for the
benefit of Tenant. Tenant's acceptance of the Premises shall be subject to the
foregoing and to the provisions of this Lease regarding delivery of possession
and completion by Landlord of all punch-list items.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The term of this Lease (the "Term") shall be for
the period shown in Item 5 of the Basic Lease Provisions. Subject to the
provisions of Section 3.2 below, the Term shall commence ("Commencement Date")
on the earlier to occur of: (i) the date that Landlord notifies Tenant of the
"Substantial Completion" of the construction of the Tenant Improvements (as
hereinafter defined), or (ii) the date Tenant occupies the Premises for the
purposes of the operation of its business therein. "Substantial Completion" of
the Tenant Improvements shall occur when: (i) a certificate of occupancy
(permanent or temporary) has been issued by the City of San Diego, (ii) all
Building systems are in good operating condition and (iii) the Tenant
Improvements have been substantially completed in accordance with the Work
Letter attached hereto as Exhibit X, except for minor punch list items which do
not preclude or materially impair Tenant from conducting its business from the
Premises. Possession of the Premises shall be tendered to Tenant on the
Commencement Date. Within ten (10) days after the Commencement Date has
occurred, the parties shall memorialize a form provided by Landlord the actual
Commencement Date and the expiration date ("Expiration Date") of this Lease.
Tenant's failure to execute that form shall not affect the validity of
Landlord's determination of those dates.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before the
Estimated Commencement Date, this Lease shall not be void or voidable nor shall
Landlord be liable to Tenant for any resulting loss or damage. However, Tenant
shall not be liable for any rent and the Commencement Date shall not occur until
Landlord delivers possession of the Premises and all conditions to the
Commencement Date specified in Section 3.1 above have been satisfied, except
that if Landlord's failure to so deliver possession on the Estimated
Commencement Date, or the failure of any of the conditions to the Commencement
Date specified in Section 3.1 above, are attributable to any action or inaction
by Tenant (including without limitation any Tenant Delay described in the Work
Letter attached to this Lease), then the Commencement Date shall not be advanced
to the date on which possession of the Premises is tendered to Tenant, and
Landlord shall be entitled to full performance by Tenant (including the payment
of rent) from the date Landlord would have been able to deliver the Premises to
Tenant but for Tenant's delay(s). If for reasons other than "Tenant Delays" as
defined in the Work Letter attached hereto as EXHIBIT X or matters beyond
Landlord's reasonable control, the Commencement Date has not occurred by
December 31, 1999 ("Outside Date"), then Tenant shall have the right to
terminate this Lease upon thirty (30) days prior written notice to Landlord
delivered at any time following the Outside Date and prior to Landlord's
delivery of the Premises to Tenant in the condition required under EXHIBIT X,
and this Lease shall terminate thirty (30) days after such notice unless
Landlord shall so deliver the Premises to Tenant within said thirty (30) days.
SECTION 3.3. RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not in
default of any monetary covenant of this Lease (including, without limitation,
the obligation to pay Basic Rent and/or Tenant's Share of Operating Expenses) or
any material non-monetary covenant, following written notice and the expiration
of the applicable cure period, either at the time of exercise of the extension
right granted herein or at the time of the commencement of such extension, and
provided further that Tenant (and/or a "Tenant Affiliate") is occupying not less
than fifty percent (50%) of the floor area of the Premises and that Tenant has
not assigned its interest in this Lease except to a "Tenant Affiliate," then
Tenant may extend the Term of this Lease for two (2) successive periods of sixty
(60) months each. Tenant shall exercise its right to extend the Term by and only
by delivering to Landlord, not less than eight (8) months or more than twelve
(12) months prior to the expiration date of the Term, Tenant's irrevocable
written notice of its commitment to extend (the "Commitment Notice"). The Basic
Rent payable under the Lease during any extension of the Term shall be
determined as provided in the following provisions.
If Landlord and Tenant have not by then been able to agree upon the
Basic Rent for the extension of the Term, then within one hundred twenty (120)
and ninety (90) days prior to the expiration date of the Term, Landlord shall
notify Tenant in writing of the Basic gent that would reflect the prevailing
market rental rate for a 60-month renewal of comparable space in the Project
(together with any increases thereof during the extension period) as of the
commencement of the extension period ("Landlord's Determination"). Should Tenant
disagree with the Landlord's Determination, then Tenant shall, not later than
twenty (20) days thereafter, notify Landlord in writing of Tenant's
determination of those rental terms ("Tenant's Determination"). Within ten (10)
days following delivery of the Tenant's Determination, the parties shall attempt
to agree on an appraiser to determine the fair market rental. If the parties are
unable to agree in that time, then each party shall designate an appraiser
within ten (10) days thereafter. Should either party fail to so designate an
appraiser within that time, then the appraiser designated by the other party
shall determine the fair market rental. Should each of the parties timely
designate an appraiser, then the two appraisers so designated shall appoint a
third appraiser who shall, acting alone, determine the fair market rental for
the Premises. Any appraiser designated hereunder shall have an MAI certification
with not less than five (5) years experience in the valuation of commercial
industrial buildings in San Diego County, California.
Within thirty (30) days following the selection of the appraiser and
such appraiser's receipt of the Landlord's Determination and the Tenant's
Determination, the appraiser shall determine whether the rental rate
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determined by Landlord or by Tenant more accurately reflects the fair market
rental rate for the 60-month renewal of the Lease for the Premises, as
reasonably extrapolated to the commencement of the extension period.
Accordingly, either the Landlord's Determination or the Tenant's Determination
shall be selected by the appraiser as the fair market rental rate for the
extension period. At any time before the decision of the appraiser is rendered,
either party may, by written notice to the other party, accept the rental terms
submitted by the other party, in which event such terms shall be deemed adopted
as the agreed fair market rental. The fees of the appraiser(s) shall be borne
entirely by the party whose determination of the fair market rental rate was not
accepted by the appraiser.
Within twenty (20) days after the determination of the fair market
rental, Landlord shall prepare an appropriate amendment to this Lease for the
extension period, and Tenant shall execute and return same to Landlord within
twenty (20) days. Should the fair market rental not be established by the
commencement of the extension period, then Tenant shall continue paying rent at
the rate in effect during the last month of the initial Term, and a lump sum
adjustment shall be made promptly upon the determination of such new rental.
If Tenant fails to timely comply with any of the provisions of this
paragraph, Tenant's right to extend the Term shall be extinguished and the Lease
shall automatically terminate as of the expiration date of the Term, without any
extension and without any liability to Landlord. Any attempt to assign or
transfer any right or interest created by this paragraph shall be void from its
inception. Tenant shall have no other right to extend the Term beyond the two
(2) successive extension periods of sixty (60) months each created by this
paragraph. Unless agreed to in a writing signed by Landlord and Tenant, any
extension of the Term, whether created by an amendment to this Lease or by a
holdover Of the Premises by Tenant, or otherwise, shall be deemed a part of, and
not in addition to, any duly exercised extension period permitted by this
paragraph.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset (except as otherwise expressly
provided in this Lease), Basic Rent for the Premises in the total amount shown
(including subsequent adjustments, if any) in Item 6 of the Basic Lease
Provisions. Any rental adjustment shown in Item 6 shall be deemed to occur on
the specified monthly anniversary of the Commencement Date, whether or not that
date occurs at the end of a calendar month. The rent shall be due and payable in
advance commencing on the Commencement Date (as prorated for any partial month)
and continuing thereafter on the first day of each successive calendar month of
the Term. No demand, notice or invoice shall be required for the payment of
Basic Rent. An installment of rent in the amount of one (1) full month's Basic
Rent at the initial rate specified in Item 6 of the Basic Lease Provisions shall
be delivered to Landlord concurrently with Tenant's execution of this Lease and
shall be applied against the Basic Rent first due hereunder.
SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional rent, Tenant's
Share of "Building Costs" and "Property Taxes," as those terms are defined
below, incurred by Landlord in the operation of the Building and Project. For
convenience of reference, Property Taxes and Building Costs shall be referred to
collectively as "Operating Expenses". The term "Tenant's Share" means that
portion of an Operating Expense determined by multiplying the cost of such item
by a fraction, the numerator of which is the floor area of the Premises and the
denominator of which is the total square footage of the floor area within all
buildings in the Project to which such Operating Expenses relate, as of the date
on which the computation is made. The rentable square footage of the Project may
be adjusted from time to time in the event new buildings are constructed within
or incorporated within the Project. For the initial Expense Recovery Period of
this Lease, "Tenant's Share" of Operating Expenses for the Project shall be
17.66%.
(b) Commencing prior to the start of the first full "Expense
Recovery Period" (as defined below) of the Lease, and prior to the start of each
full or partial Expense Recovery Period thereafter, Landlord shall give Tenant a
written estimate of Tenant's Share of the amount of Operating Expenses for the
Expense Recovery Period. Tenant shall pay the estimated amounts to Landlord in
equal monthly installments, in advance, with Basic Rent. If Landlord has not
furnished its written estimate for any Expense Recovery Period by the time set
forth above, Tenant shall continue to pay cost reimbursements at the rates
established for the prior Expense Recovery Period, if any; provided that when
the new estimate is delivered to Tenant, Tenant shall, at the next monthly
payment date, pay any accrued cost reimbursements based upon the new estimate.
For purposes hereof, "Expense Recovery Period" shall mean every twelve month
period during the Term (or portion thereof for the first and last lease year)
commencing July 1 and ending June 30.
(c) Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Operating Expenses incurred by Landlord
during the period, and the parties shall within thirty (30) days thereafter make
any payment or allowance necessary to adjust Tenant's estimated payments, if
any, to Tenant's actual owed amounts as shown by the annual statement. Any delay
or failure by Landlord in delivering any statement hereunder shall not
constitute a waiver of Landlord's right to require Tenant to pay Operating
Expenses pursuant hereto. Any amount due Tenant shall be credited against
installments next coming due under this Section 4.2, and any deficiency shall be
paid by Tenant together with the next installment. If Tenant has not made
estimated payments during the Expense Recovery Period, any amount owing by
Tenant pursuant to subsection (a) above shall be paid to Landlord in accordance
with Article XVI. Should Tenant fail to object in writing to Landlord's
determination of actual Operating Expenses within one hundred twenty (120) days
following delivery of Landlord's expense statement, Landlord's determination of
actual Operating Expenses for the applicable Expense Recovery Period shall be
conclusive and binding on the parties and any future claims to the contrary
shall be barred.
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Landlord agrees that it will maintain complete and
accurate records of all costs, expenses and disbursements paid or incurred by
Landlord, its employees, agents and/or contractors, with respect to the
Operating Expenses in accordance with generally accepted accounting principles,
consistently applied. Such records shall be kept until one (1) year after the
termination of this Lease. Landlord shall provide in reasonable detail the
calculation of Tenant's Share of the Operating Expenses. Provided Tenant is not
then in default of any monetary covenant of this Lease (including, without
limitation, the obligation to pay Basic Rent and/or Tenant's Share of Operating
Expenses), or any material non-monetary covenant, following written notice and
the expiration of the applicable cure period, then Tenant shall have the right
to have Tenant's financial officer or a certified public accountant audit
Landlord's Operating Expenses, subject to the terms and conditions hereof. In no
event, however, shall such auditor be compensated by Tenant on a "contingency"
basis, or on any other basis tied to the results of said audit. Tenant shall
give notice to Landlord of Tenant's intent to audit within one hundred twenty
(120) days following delivery of Landlord's expense statement for each of the
Expense Recovery Periods. Following at least ten (10) business days notice to
Landlord, such audit shall be conducted at a mutually agreeable time during
normal business hours at the office of Landlord or its management agent where
the records are maintained in San Diego County, California. Landlord agrees to
make such personnel available to Tenant as is reasonably necessary for Tenant's
employees and agents, to conduct such audit. Landlord shall make such records
available to Tenants employees and agents, for inspection during normal business
hours. Tenant's employees and agents shall be entitled to make photostatic
copies of such records, provided Tenant bears the expense of such copying, and
further provided that Tenant keeps such copies in a confidential mariner and
does not discuss, display or distribute such copies to any other third party. If
Tenant's audit determines that actual Operating Expenses have been overstated by
more than four percent (4%), then subject to Landlord's right to review and/or
contest the audit results, Landlord shall reimburse Tenant for the reasonable
out-of-pocket costs of such audit. Tenant's Basic Rent shall be appropriately
adjusted to reflect any overstatement in Operating Expenses. In the event of a
dispute between Landlord and Tenant regarding the results of such audit, such
dispute shall be submitted to and resolved by JAMS as provided in Section 22.7
of this Lease.
All of the information obtained by Tenant and/or its
auditor in connection with such audit, as well as any compromise, settlement, or
adjustment reached between Landlord and Tenant as a result thereof, shall be
held in strict confidence and, except as may be required pursuant to litigation
and, except for inadvertent disclosures despite Tenant's reasonable efforts to
keep the disclosed information confidential, shall not be disclosed to any third
party, directly or indirectly, by Tenant or its auditor or any of their
officers, agents or employees. Landlord may require Tenant's auditor to execute
a separate confidentiality agreement affirming the foregoing as a condition
precedent to any audit.
(d) Even though the Lease has terminated and the Tenant has
vacated the Premises, when the final determination is made of Operating Expenses
for the Expense Recovery Period in which the Lease terminates, Tenant shall upon
notice pay the entire increase of Tenant's Share of said Operating Expenses due
over the estimated expenses paid. Conversely, any overpayment made in the event
expenses decrease shall be rebated promptly by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one
or more of the Operating Expenses are increased to a rate(s) or amount(s) in
excess of the rate(s) or amount(s) used in calculating the estimated expenses
for the year, then the estimate of Operating Expenses shall be increased for the
month in which such rate(s) or amount(s) becomes effective and for all
succeeding months by an amount equal to Tenant's Share of the increase. Landlord
shall give Tenant written notice of the amount or estimated amount of the
increase, the month in which the increase will become effective, and the month
for which the payments are due. Tenant shall pay the increase to Landlord as a
pan of Tenant's monthly payments of estimated expenses as provided in paragraph
(b) above commencing with the month in which effective.
(f) The term "Building Costs" shall include all expenses of
operation and maintenance of the Building and of the Building's proportionate
share of the Project, if applicable (determined as the rentable square footage
of the Building divided by the rentable square footage of all space in the
Project), to the extent such expenses are not billed to and paid directly by
Tenant, and shall include the following charges by way of illustration but not
limitation: water and sewer charges; insurance premiums or reasonable premium
equivalents should Landlord elect to self-insure any risk that Landlord is
authorized to insure hereunder (provided that: (i) in no event shall Tenant be
responsible for deductibles associated with earthquake or flood insurance
premiums in excess of Ten Thousand Dollars ($10,000.00) per year on an amortized
basis over the useful life of the "capitalized" repairs or replacements
resulting from the casualty giving rise to the payment of said deductibles
[calculated at a market cost of funds, all as determined by Landlord using
generally accepted accounting principles consistently applied] for each
remaining year of useful life during the Term, and (ii) in the event that
Landlord shall spread the cost of premiums or premium equivalents for earthquake
and/or flood insurance other than on a straight per square foot basis over its
leased portfolio throughout the State of California, then Landlord shall
reasonably determine the geographic risks of its leased portfolio for insurance
and flood insurance purposes and shall spread the costs of such coverage
accordingly; license, permit, and inspection fees; heat; light; power; air
conditioning; supplies; materials; equipment; tools; the reasonable cost of any
environmental, insurance, tax or other consultant utilized by Landlord in
connection with the Building and/or Project; establishment of reasonable
reserves for replacements and/or repair of Common Area improvements (if
applicable), equipment and supplies; costs incurred in connection with
compliance of any laws or changes in laws applicable to the Building or the
Project; the cost of any capital investments (other than tenant improvements for
specific tenants) to the extent of the amortized amount thereof over the useful
life of such capital investments calculated at a market cost of finds, all as
determined by Landlord using generally accepted accounting principles
consistently applied, for each such year of useful life during the Term; costs
associated with the procurement and maintenance of an intrabuilding network
cable service agreement for any intrabuilding network cable telecommunications
lines within the Project, and any other installation, maintenance, repair and
replacement costs associated with such lines; labor; reasonably allocated wages
and salaries, fringe
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benefits, and payroll taxes for administrative and other personnel directly
applicable to the Building and/or Project, including both Landlord's personnel
and outside personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4,
7.2, and 10.2; and a reasonable overhead/management fee for the professional
operation of the Building and Project. Notwithstanding anything to the contrary
contained herein, the amount of such overhead/management fee to be charged to
Tenant shall be determined by multiplying the actual fee charged (which from
time to time may be with respect to the entire Project, a portion of the Project
only, the Building only, or the Project together with other properties owned by
Landlord and/or its affiliates) by a fraction, the numerator of which is the
floor area of the Premises (as set forth in Item No. 8 of the Basic Lease
Provisions) and the denominator of which is the total square footage of space
charged with such fee actually leased to tenants (including Tenant). It is
understood that Building Costs shall include competitive charges for direct
services provided by any subsidiary or division of Landlord.
Notwithstanding the provisions of this Section 4.2 to the
contrary, Operating Expenses shall not include any cost or expense identified as
the responsibility of Landlord and not an Operating Expense by the express terms
of this Lease, and shall not include any of the following:
(1) Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred by Landlord or its agents in
connection with negotiations for leases with tenants, other occupants or
prospective tenants or other occupants of the Project, and similar costs
incurred in connection with disputes with and/or enforcement of any lease with
tenants, other occupants, or prospective tenants or other occupants of the
Project;
(2) "Tenant allowances," "tenant concessions," work
letter payments, and other costs or expenses (including permit, license and
inspection fees) incurred in completing, fixturing, furnishing, renovating or
otherwise improving, decorating or redecorating space for other tenants or
occupants of the Project, or vacant, leasable space in the Project, including
space planning/interior design fees for same;
(3) Depreciation and other "non-cash" expense
items;
(4) Services, items and benefits for which Tenant
or any other tenant or occupant of the Project specifically reimburses Landlord
or for which Tenant or any other tenant or occupant of the Project pays third
persons or services, items or benefits which are not generally made available to
Tenant as an occupant of the Building or the Project;
(5) Costs or expenses (including fines, penalties
and legal fees) incurred due to the violation by Landlord of any terms and
conditions (other than by Tenant) of this Lease or of the leases of other
tenants in the Project, that would not have incurred but for such violation by
Landlord;
(6) Penalties for late payment of any Operating
Expenses by Landlord, including, without limitation, with respect to taxes,
equipment leases, etc.;
(7) Payments in respect of overhead and/or profit
to any subsidiary or Affiliate (hereinafter defined) of Landlord, as a result of
a non-competitive selection process for services (other than the management fee)
on or to the Project, or for goods, supplies or other materials, to the extent
that the costs of such services, goods, supplies or materials exceed the costs
that would have been paid if the services, goods, supplies or materials had been
provided by parties unaffiliated with Landlord, of similar skill, competence and
experience, on a competitive basis;
(8) Payments of principal, finance charges or
interest on debt or amortization on any deed of trust or other debt encumbering
the Project, and rental payments (or, increases in same) under any ground or
underlying lease or leases encumbering the Project (except to the extent the
same may be made to pay or reimburse, or may be measured by Property Taxes);
(9) Except for a management fee which is reasonable
and commercially competitive for similar projects in the area of the Project,
costs of Landlord's general overhead and general administrative expenses
(individual, partnership or corporate, as the case may be) and wages, salaries
and other compensation and benefits (as well as adjustments thereto) for all
employees and personnel of Landlord above the level of manager for the Project,
which costs would not be chargeable to Operating Expenses in accordance with
generally accepted accounting principles, consistently applied;
(10) Rentals and other related expenses, if any,
incurred in leasing air conditioning systems or other equipment ordinarily
considered to be of a capital nature, except equipment which is used in
providing janitorial services and which is not affixed to the Project and
equipment which is leased on a temporary basis in emergency situations;
(11) Advertising and promotional expenses;
(12) Costs or expenses for the acquisition of
sculpture, paintings or other works of art, but not the reasonable expenses of
maintaining, repairing and insuring same;
(13) Costs for which Landlord is compensated
through or reimbursed by insurance;
(14) Contributions to operating expense reserves
(including tax reserves), except for reasonable reserves for the roof of the
Building and as specifically set forth in Section 4.4 hereof;
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(15) Contributions to political or charitable
organizations;
(16) Costs incurred in removing the property of
former tenants and/or other occupants of the Project;
(17) The costs of any "tap fees" or one-time lump
sum sewer, water or other utility connection fees for the Project;
(18) Costs or fees relating to the defense of
Landlord's title to or interest in the Building and/or the Project, or any part
thereof,
(19) Any other expense which, under generally
accepted accounting principles, consistently applied, would not be considered to
be a normal maintenance or operating expense of the Building and/or the Project;
(20) Costs for which Landlord is actually
reimbursed by any recovery of insurance proceeds; and
(21) All costs of the "shell" Building work (as
defined in the Work Letter attached hereto), including without limitation,
initial construction costs of parking lots and landscaping within the Common
Areas.
As used herein, the term "Affiliate" shall mean and refer
to any person or entity controlling, controlled by, or under common control with
another such person or entity. "Control," as used herein, shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such controlled person or entity; the ownership,
directly or indirectly, of at least fifty-one percent (51%) of the voting
securities of, or possession of the right to vote, in the ordinary direction of
its affairs, at least fifty-one percent (51%) of the voting interest in, any
person or entity shall be presumed to constitute such control. In the case of
Landlord, the term "Affiliate" shall include any person or entity controlling or
controlled by or under common control with any general partner of Landlord or
any general partner of Landlord's general partner.
(g) The term "Property Taxes" as used herein shall include the
following: (i) all real estate taxes or personal property taxes, as such
property taxes may be reassessed from time to time; and (ii) other taxes,
charges and assessments which are levied with respect to this Lease or to the
Building and/or the Project, and any improvements and fixtures located in the
Building and/or the Project, except that general net income and franchise taxes
imposed against Landlord shall be excluded; and (iii) all assessments and fees
for public improvements, services, and facilities and impacts thereon, including
without limitation arising out of any Community Facilities Districts, "Mello
Roos" districts, similar assessment districts, and any traffic impact mitigation
assessments or fees; (iv) any tax, surcharge or assessment which shall be levied
in addition to or in lieu of real estate or personal property taxes, other than
taxes covered by Article VIII; and (v) costs and expense incurred in contesting
the amount or validity of any Property Tax by appropriate proceedings.
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions, to be held by Landlord as security for the full
and faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Subject to the last sentence of this Section, the Security Deposit
shall be understood and agreed to be the property of Landlord upon Landlord's
receipt thereof, and may be utilized by Landlord in its discretion towards the
payment of all prepaid expenses by Landlord for which Tenant would be required
to reimburse Landlord under this Lease, including without limitation brokerage
commissions and Tenant Improvement costs. Upon any default by Tenant, including
specifically Tenant's failure to pay rent or to abide by its obligations under
Sections 7.1 and 15.3 below, whether or not Landlord is informed of or has
knowledge of the default, the Security Deposit shall be deemed to be
automatically and immediately applied, without waiver of any rights Landlord may
have under this Lease or at law or in equity as a result of the default, as a
setoff for full or partial compensation for that default. If any portion of the
Security Deposit is applied after a default by Tenant, Tenant shall within five
(5) days after written demand by Landlord deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest in this Lease) after the
expiration of the Term, provided that Landlord may retain the Security Deposit
to the extent and until such time as all amounts due from Tenant in accordance
with this Lease have been determined and paid in full.
SECTION 4.4. LETTER OF CREDIT. In addition to the Security Deposit and
as security hereunder, Tenant shall deliver to Landlord, concurrently with
Tenant's execution of this Lease, a letter of credit in the amount of Seven
Hundred Thousand Dollars ($700,000.00). Said letter of credit shall be in form
and with the substance of Exhibit F attached hereto, and issued by Bank of
America. The letter of credit shall provide for automatic yearly renewals
throughout the Term of this Lease. Upon any default by Tenant which has not been
cured within the applicable time period, including specifically Tenant's failure
to pay rent or to abide by its obligations under Sections 7.1 and 15.3 below,
Landlord shall be entitled to draw upon said letter of credit in the amount of
the default(s) by the issuance of Landlord's sole written demand to the issuing
financial institution. Any such draw shall be without waiver of any rights
Landlord may have under this Lease or at law or in equity as a result of the
default. If any portion of the letter of credit is drawn after a default by
Tenant, Tenant shall within five (5) days after written demand by Landlord
restore the letter of credit. In the event that (i) Tenant has not been in
default under the Lease (beyond the expiration of any applicable cure period) at
any time during the Term hereof, and
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(ii) Tenant has not at any time been more than five (5) days late with respect
to any payments of rent due under the Lease more than twice during the Term,
then upon the written request of Tenant, Landlord shall authorize in writing
consecutive reductions to the principal amount of the letter of credit, each of
such reductions in the amount of One Hundred Thousand Forty Dollars
($140,000.00), upon the expiration of the twelfth (12th), twenty-fourth (24th),
thirty-sixth (36th), forty-eighth (48th), and the sixtieth (60th) months during
the Term. In the event that: (A) Tenant has not been in default under the Lease
(beyond the expiration of any applicable cure period) at any time during the
Term hereof, (B) Tenant has not at any time been more than five (5) days late
with respect to any payments of rent due under the Lease more than twice during
the Term, and (C) Tenant shall demonstrate by the delivery to Landlord of its
audited financial Statements that Tenant has a current annual net income of at
least Three Million Dollars ($3,000,000.00), and total current net worth of not
less than Fifteen Million Dollars ($15,000,000.00) (as determined by generally
accepted accounting principles, consistently applied, then, upon written request
of Tenant, Landlord shall authorize a full exoneration and release of the letter
of credit.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities. The
parties agree that any contrary use shall be deemed to cause material and
irreparable harm to Landlord and shall entitle Landlord to injunctive relief in
addition to any other available remedy. Tenant, at its expense, shall procure,
maintain and make available for Landlord's inspection throughout the Term, all
governmental approvals, licenses and permits required for the proper and lawful
conduct of Tenant's permitted use of the Premises. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way unreasonably
interfere with the rights of other occupants of the Building or the Project, or
use or allow the Premises to be used for any unlawful purpose, nor shall Tenant
permit any nuisance or commit any waste in the Premises or the Project. Tenant
shall not do or permit to be done anything which will invalidate or increase the
cost of any insurance policy(ies) covering the Building, the Project and/or
their contents, and shall comply with all applicable insurance underwriters
rules and the requirements of the Pacific Fire Rating Bureau or any other
organization performing a similar function (to the extent such rules and
regulations are provided to Tenant). Tenant shall comply at its expense with all
present and future laws, ordinances, restrictions, regulations, orders, rules
and requirements of all governmental authorities that pertain to Tenant or its
use of the Premises, including without limitation all federal and state
occupational health and safety requirements, whether or not Tenant's compliance
will necessitate expenditures or interfere with its use and enjoyment of the
Premises. Tenant shall comply at its expense with all present covenants,
conditions, easements or restrictions now affecting or encumbering the Building
and/or Project, including without limitation the payment by Tenant of any
periodic or special dues or assessments charged against the Premises or Tenant
which may be allocated to the Premises or Tenant in accordance with the
provisions thereof, and any amendments or modifications thereto which do not
materially derogate the rights of Tenant or materially increase the obligations
of Tenant hereunder. Tenant shall promptly upon demand reimburse Landlord for
any additional insurance premium charged by reason of Tenant's failure to comply
with the provisions of this Section, and shall indemnify Landlord from any
liability and/or expense resulting from Tenant's noncompliance.
SECTION 5.2. SIGNS. Provided Tenant continues to occupy the entire
Premises, Tenant shall have the exclusive right to two (2) "Building top"
exterior signs on the exterior facade of the Building, subject to Landlord's
right of prior approval that such exterior signage is in compliance with the
Signage Criteria (defined below). Except as provided in the foregoing or as
otherwise approved in writing by Landlord, in its sole discretion, Tenant shall
have no right to maintain identification signs in any location in, on or about
the Premises, the Building or the Project and shall not place or erect any
signs, displays or other advertising materials that are visible from the
exterior of the Building. The size, design, graphics, material, style, color and
other physical aspects of any permitted sign shall be subject to Landlord's
written approval prior to installation (which approval may not be unreasonably
withheld), any covenants, conditions or restrictions encumbering the Premises,
Landlord's signage program for the Project, as in effect from time to time and
approved by the City in which the Premises are located ("Signage Criteria"), and
any applicable municipal or other governmental permits and approvals. Tenant
acknowledges having received and reviewed a copy of the current Signage Criteria
for the Project. Tenant shall be responsible for the cost of any permitted sign,
including the fabrication, installation, maintenance and removal thereof. If
Tenant fails to maintain its sign, or if Tenant fails to remove same upon
termination of this Lease and repair any damage caused by such removal, Landlord
may do so at Tenant's expense.
SECTION 5.3. HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous Materials"
includes (i) any "hazardous materials" as defined in Section 25501(n) of the
California Health and Safety Code, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such substance or
matter under any statutory or common law theory, and (iii) any substance or
matter which is in excess of permitted levels set forth in any federal,
California or local law or regulation pertaining to any hazardous or toxic
substance, material or waste.
(b) Except for those Hazardous Materials identified on the
Environmental Questionnaire approved by Landlord prior to the execution of this
Lease, Tenant shall not cause or knowingly permit any Hazardous Materials to be
brought upon, stored, used, generated, released or disposed of on, under, from
or about the Premises (including without limitation the soil and groundwater
thereunder) without the prior written consent of Landlord. Notwithstanding the
foregoing, Tenant shall have the right, without obtaining prior written consent
of Landlord, to utilize within the Premises standard office products that may
contain Hazardous Materials (such as photocopy toner, "White Out," and the
like), provided, however, that (i) Tenant shall maintain such products in their
original retail packaging, shall follow all instructions on such packaging with
respect to the storage, use and disposal of such products, and shall otherwise
comply with all applicable laws with respect to such products, and (ii) all of
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the other terms and provisions of this Section 5.3 shall apply with respect to
Tenant's storage, use and disposal of all such products. Landlord may, in its
sole discretion, place such conditions as Landlord deems appropriate with
respect to any such Hazardous Materials, and may further require that Tenant
demonstrate that any such Hazardous Materials are necessary or useful to
Tenant's business and will be generated, stored, used and disposed of in a
manner that complies with all applicable laws and regulations pertaining thereto
and with good business practices. Tenant understands that Landlord may utilize
an environmental consultant to assist in determining conditions of approval in
connection with the storage, generation, release, disposal or use of Hazardous
Materials by Tenant on or about the Premises, and/or to conduct periodic
inspections of the storage, generation, use, release and/or disposal of such
Hazardous Materials by Tenant on and from the Premises, and Tenant agrees that
any costs reasonably incurred by Landlord in connection therewith shall be
reimbursed by Tenant to Landlord as additional rent hereunder upon demand;
however, Tenant shall have no obligation to reimburse Landlord for any costs
incurred in connection with any environmental consultant retained by Landlord
pursuant to this Section unless Tenant shall be in default under this Section
5.3 and such costs are covered by Tenant's indemnity contained in this Section
5.3.
(c) Prior to the execution of this Lease, Tenant shall complete,
execute and deliver to Landlord an Environmental Questionnaire and Disclosure
Statement (the "Environmental Questionnaire") in the form of Exhibit B attached
hereto. The completed Environmental Questionnaire shall be deemed incorporated
into this Lease for all purposes, and Landlord shall be entitled to rely fully
on the information contained therein. On each anniversary of the Commencement
Date until the expiration or sooner termination of this Lease, Tenant shall
disclose to Landlord in writing the names and amounts of all Hazardous
Materials, if any, which were stored, generated, used, released and/or disposed
of on, under or about the Premises for the twelve-month period prior thereto,
and which Tenant desires to store, generate, use, release and/or dispose of on,
under or about the Premises for the succeeding twelve-month period. In addition,
to the extent Tenant is permitted to utilize Hazardous Materials upon the
Premises, Tenant shall promptly provide Landlord with complete and legible
copies of all the following environmental documents relating thereto: reports
filed pursuant to any self-reporting requirements; permit applications, permits,
monitoring reports, workplace exposure and community exposure warnings or
notices and all other reports, disclosures, plans or documents (even those which
may be characterized as confidential) relating to water discharges, air
pollution, waste generation or disposal, and underground storage tanks for
Hazardous Materials; orders, reports, notices, listings and correspondence (even
those which may be considered confidential) of or concerning the release,
investigation of, compliance, cleanup, remedial and corrective actions, and
abatement of Hazardous Materials; and all complaints, pleadings and other legal
documents filed by or against Tenant related to Tenant's use, handling, storage,
release and/or disposal of Hazardous Materials.
(d) Landlord and its agents shall have the right, but not the
obligation, to inspect, sample and/or monitor the Premises and/or the soil or
groundwater thereunder at any time to determine whether Tenant is complying with
the terms of this Section 5.3, and in connection therewith Tenant shall provide
Landlord with full access to all relevant facilities, records and personnel. If
Tenant is not in compliance with any of the provisions of this Section 5.3, or
in the event of a release of any Hazardous Material on, under or about the
Premises caused or permitted by Tenant, its agents, employees, contractors,
licensees or invitees, Landlord and its agents shall have the right, but not the
obligation, without limitation upon any of Landlord's other rights and remedies
under this Lease, to immediately enter upon the Premises without notice and to
discharge Tenant's obligations under this Section 5.3 at Tenant's expense,
including without limitation the taking of emergency or long-term remedial
action. Landlord and its agents shall endeavor to minimize interference with
Tenant's business in connection therewith, but shall not be liable for any such
interference. In addition, Landlord, at Tenant's expense, shall have the right,
but not the obligation, to join and participate in any legal proceedings or
actions initiated in connection with any claims arising out of the storage,
generation, use, release and/or disposal by Tenant or its agents, employees,
contractors, licensees or invitees of Hazardous Materials on, under, from or
about the Premises.
(e) If the presence of any Hazardous Materials on, under, from or
about the Premises or the Project caused or permitted by Tenant or its agents,
employees, contractors, licensees or invitees results in (i) injury to any
person, (ii) injury to or any contamination of the Premises or the Project, or
(iii) injury to or contamination of any real or personal property wherever
situated, Tenant, at its expense, shall promptly take all actions necessary to
return the Premises and the Project and any other affected real or personal
property owned by Landlord to the condition existing prior to the introduction
of such Hazardous Materials and to remedy or repair any such injury or
contamination, including without limitation, any cleanup, remediation, removal,
disposal, neutralization or other treatment of any such Hazardous Materials.
Notwithstanding the foregoing, Tenant shall not, without Landlord's prior
written consent (not to be unreasonably withheld), take any remedial action in
response to the presence of any Hazardous Materials on, under or about the
Premises or the Project or any other affected real or personal property owned by
Landlord or enter into any similar agreement, consent, decree or other
compromise with any governmental agency with respect to any Hazardous Materials
claims; provided however, Landlord's prior written consent shall not be
necessary in the event that the presence of Hazardous Materials on, under or
about the Premises or the Project or any other affected real or personal
property owned by Landlord (i) imposes an immediate threat to the health, safety
or welfare of any individual or (ii) is of such a nature that an immediate
remedial response is necessary and it is not possible to obtain Landlord's
consent before taking such action. To the fullest extent permitted by law,
Tenant shall indemnify, hold harmless, protect and defend (with attorneys
acceptable to Landlord) Landlord and any successors to all or any portion of
Landlord's interest in the Premises and the Project and any other real or
personal property owned by Landlord from and against any and all liabilities,
losses, damages, diminution in value, judgments, fines, demands, claims,
recoveries, deficiencies, costs and expenses (including without limitation
attorneys' fees, court costs and other professional expenses), whether
foreseeable or unforeseeable, arising directly or indirectly out of the use,
generation, storage, treatment, release, on- or off-site disposal or
transportation of Hazardous Materials on, into, from, under or about the
Premises, the Building and the Project and any other real or personal property
owned by Landlord caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees, specifically including without limitation
the cost of any required or necessary repair, restoration, cleanup or
detoxification of the Premises, the Building and the Project and any other real
or personal property owned by Landlord, and the preparation of any closure or
other required plans, whether or
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not such action is required or necessary during the Term or after the expiration
of this Lease. If Landlord at any time discovers that Tenant or its agents,
employees, contractors, licensees or invitees may have caused or permitted the
release of a Hazardous Material on, under, from or about the Premises or the
Project or any other real or personal property owned by Landlord, Tenant shall,
at Landlord's request, immediately prepare and submit to Landlord a
comprehensive plan, subject to Landlord's approval, specifying the actions to be
taken by Tenant to return the Premises or the Project or any other real or
personal property owned by Landlord to the "Condition Substantially Existing"
(as hereinafter defined) prior to the introduction of such Hazardous Materials.
Upon Landlord's approval of such cleanup plan, Tenant shall, at its expense, and
without limitation of any rights and remedies of Landlord under this Lease or at
law or in equity, immediately implement such plan and proceed to cleanup such
Hazardous Materials in accordance with all applicable laws and to return the
Premises, Project and/or other real or personal property owned by Landlord, as
applicable, to the Condition Substantially Existing prior to the introduction of
such Hazardous Materials, as required by such plan and this Lease. As used
herein, the term "Condition Substantially Existing" shall mean that condition of
the Project, Premises and/or other real or personal property owned by Landlord,
as applicable, which is both: (i) in compliance with all applicable laws, rules,
regulations and/or the agreement, consent, decree or other compromise of, or
with, a governmental agency having jurisdiction with respect to such Hazardous
Materials, and (ii) allows Landlord to market, re-lease, sell and/or finance and
refinance the Project, Premises and/or such real or personal property owned by
Landlord, as applicable, without a material devaluation thereof as, and assuming
no substantial change in use thereof from, a first-class business project. The
provisions of this subsection (e) shall expressly survive the expiration or
sooner termination of this Lease.
(f) If the release of any Hazardous Materials on, under, from or
about the Premises or the Project caused by Landlord, its authorized agents or
employees, and not introduced by Tenant, its agents, employees, contractors,
licensees, or invitees results in (i) injury to any person, or (ii) injury to or
any contamination, of the Premises or the Project at levels which require
clean-up or remediation under applicable laws, Landlord, at its expense (which
shall not be included in Operating Expenses), shall promptly take all actions
necessary to return the Premises and the Project to the condition existing prior
to the introduction of such Hazardous Materials, or to such condition as is
satisfactory to all governmental agencies asserting jurisdiction, and to remedy
or repair any such injury or contamination, including, without limitation, any
clean-up, remediation, removal, disposal, neutralization or other treatment of
any such Hazardous Materials. The foregoing obligation on the part of Landlord
shall include the reasonable costs (including, without limitation, reasonable
attorney's fees) of defending Tenant (with attorneys reasonably acceptable to
Tenant) from and against any legal action or proceeding instituted by any
governmental agency in connection with such clean-up, remediation, removal,
disposal, neutralization or other treatment of such conditions, provided that
Tenant promptly tenders such defense to Landlord. Tenant agrees to notify its
agents, employees, Contractors, licensees, and invitees of any exposure or
potential exposure to Hazardous Materials at the Premises that Landlord brings
to Tenant's attention.
(g) Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Project known
by Landlord to exist as of the date of this Lease, as more particularly
described in Exhibit C attached hereto. Tenant shall have no liability or
responsibility with respect to the Hazardous Materials facts described in
Exhibit C, nor with respect to any Hazardous Materials which Tenant proves were
not caused or permitted by Tenant, its agents, employees, contractors, licensees
or invitees. Notwithstanding the preceding two sentences, Tenant agrees to
notify its agents, employees, contractors, licensees, and invitees of any
exposure or potential exposure to Hazardous Materials at the Premises that
Landlord brings to Tenant's attention. Except as disclosed in this Section
5.3(g) (and/or as may otherwise be disclosed to Tenant in writing), Landlord
represents that, to the best of its actual knowledge without duty of inquiry or
investigation whatsoever, there are no Hazardous Materials in or about the
Premises which are in violation of any applicable federal, state or local law,
ordinance or regulation.
(h) The obligations on the part of Landlord contained in Section
5.6(g) above are personal to Landlord and shall not be binding on, nor inure
against any successor in interest to Landlord as of the owner of the Premises,
including without limitation, any lender acquiring the Premises by foreclosure
of its mortgage or deed of trust or deed in lieu of foreclosure. The obligations
on the part of Landlord contained in Section 5.3(f) above shall be binding on
Landlord and each successor-in-interest to Landlord as of owner of the Premises
(including without limitation, any lender acquiring the Premises by foreclosure
of its mortgage or deed of trust or deed in lieu of foreclosure) only to the
extent of releases of Hazardous Materials caused by Landlord and any
successor-in-interest to Landlord during their respective periods of ownership
of the Premises.
ARTICLE VI. COMMON AREAS; SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly, directly to the appropriate supplier, all charges for water,
gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon; provided, however, Tenant shall not be obligated to pay directly for
any utilities, water, gas, electricity, sewer, heat, light, power, janitorial
service, landscape maintenance, etc. to the extent such costs are billed to
Tenant as Operating Expenses for the Project. Landlord shall not be liable for
damages or otherwise for any failure or interruption of any utility or other
service furnished to the Premises, and except as expressly provided in the next
succeeding paragraph of this Section 6.1, no such failure or interruption shall
be deemed an eviction or entitle Tenant to terminate this Lease or withhold or
abate any rent due hereunder. Landlord shall at all reasonable times have free
access to all electrical and mechanical installations of Landlord. In exercising
Landlord's right of free access to all mechanical and electrical installations,
Landlord shall not unreasonably interfere with Tenant's use and enjoyment of the
Premises.
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Notwithstanding the foregoing, if as a result of the actions of
Landlord, its authorized agents or employees, for more than three (3)
consecutive business days following written notice to Landlord there is no HVAC
or electricity services to all or a portion of the Premises, or such an
interruption of other essential utilities and building services, such as fire
protection or water, so that all or a portion of the Premises cannot be used by
Tenant, then Tenant's Basic Rent (or an equitable portion of such Basic Rent to
the extent that less than all of the Premises are affected) shall thereafter be
abated until the Premises are again usable by Tenant; provided, however, that if
Landlord is diligently pursuing the repair of such utilities or services and
Landlord provides substitute services reasonably suitable for Tenant's purposes,
as for example, bringing in portable air-conditioning equipment, then there
shall not be an abatement of Basic Rent. Any disputes concerning the foregoing
shall be submitted to and resolved by JAMS arbitration pursuant to Section 22.7
of this Lease. The foregoing provisions shall not apply in case of damage to, or
destruction of, the Premises, which shall be governed by the provisions of
Article XI of the Lease.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate all Common Areas within the Project. The term "Common
Areas" shall mean all areas which are not held for exclusive use by persons
entitled to occupy space, and all other appurtenant areas and improvements
provided by Landlord for the common use of Landlord and tenants and their
respective employees and invitees, including without limitation parking areas
and structures, driveways, sidewalks, landscaped and planted areas, hallways and
interior stairwells not located within the premises of any tenant, common
electrical rooms and roof access entries, common entrances and lobbies,
elevators, and restrooms not located within the premises of any tenant. Subject
to the express provisions of this Lease, Tenant shall have access to the
Premises twenty-four (24) hours per day, three hundred sixty-five (365) days per
year and, subject to Landlord's assessment of a reasonable charge therefore
which takes into consideration factors such as, but not limited to, the
increased wear and tear or the HVAC equipment itself, HVAC service in the
Building shall be available to Tenant twenty-four (24) hours per day, three
hundred sixty-five (365) days per year. Any disputes concerning the foregoing
shall be submitted to and resolved by JAMS arbitration pursuant to Section 22.7
of this Lease. Landlord's operation, maintenance and repair of the Common Areas
shall not unreasonably interfere with Tenant's use and enjoyment of the
Premises.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord and
with all others for whose convenience and use the Common Areas may be provided
by Landlord, subject, however, to compliance with all rules and regulations as
are prescribed from time to time by Landlord. Landlord shall operate and
maintain the Common Areas consistent with other first-class business projects in
the area of the Project, in the manner Landlord may determine to be appropriate.
All costs incurred by Landlord for the maintenance and operation of the Common
Areas shall be included in Building Costs, unless any particular cost incurred
should be charged to a specific tenant of the Project in Landlord's reasonable,
good faith judgment, in which case such cost shall be so charged. Landlord shall
at all times during the Term have exclusive control of the Common Areas, and may
restrain any use or occupancy, except as authorized by Landlord's rules and
regulations. Tenant shall keep the Common Areas clear of any obstruction or
unauthorized use related to Tenant's operations. Nothing in this Lease shall be
deemed to impose liability upon Landlord for any damage to or loss of the
property of, or for any injury to, Tenant, its invitees or employees. Landlord
may temporarily close any portion of the Common Areas for repairs, remodeling
and/or alterations, to prevent a public dedication or the accrual of
prescriptive rights, or for any other reason deemed sufficient by Landlord,
without liability to Landlord. Tenant shall not be required to comply with any
rules and regulations for the Project other than those attached to this Lease
unless such rules and regulations are commercially reasonable and
nondiscriminatory in content and application. Landlord's exclusive control,
operation, maintenance and repair of the Common Area shall be subject to
Tenant's parking rights contained in Section 6.4 below and to all other
limitations contained in this Lease. Landlord agrees that any temporary closure
of any portion of the Common Areas shall not unreasonably interfere with
Tenant's intended use of the Premises, nor its reasonable access to or parking
for the Premises.
SECTION 6.4. PARKING. Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces
shall be unreserved and unassigned, on those portions of the Common Areas
designated by Landlord for parking. Landlord will designate five (5) of such
spaces for "visitor" parking. Tenant shall not use more parking spaces than such
number. All parking spaces shall be used only for parking by vehicles no larger
than full size passenger automobiles or pickup trucks. Tenant shall not permit
or allow any vehicles that belong to or are controlled by Tenant or Tenant's
employees, suppliers, shippers, customers or invitees to be loaded, unloaded or
parked in areas other than those designated by Landlord for such activities. If
Tenant permits or allows any of the prohibited activities described above, then
Landlord shall have the right, without notice, in addition to such other rights
and remedies that Landlord may have, to remove or tow away the vehicle involved
and charge the costs to Tenant. Parking within the Common Areas shall be limited
to striped parking stalls, and no parking shall be permitted in any driveways,
access ways or in any area which would prohibit or impede the free flow of
traffic within the Common Areas. There shall be no overnight parking of any
vehicles of any kind unless otherwise authorized by Landlord, and vehicles which
have been abandoned or parked in violation of the terms hereof may be towed away
at the owner's expense. Nothing contained in this Lease shall be deemed to
create liability upon Landlord for any damage to motor vehicles of visitors or
employees, for any loss of property from within those motor vehicles, or for any
injury to Tenant, its visitors or employees, unless ultimately determined to be
caused by the sole active negligence or willful misconduct of Landlord, its
agents, servants and employees. Landlord shall have the right to establish, and
from time to time amend, and to enforce against all users all reasonable rules
and regulations (including the designation of areas for employee parking) that
Landlord may deem necessary and advisable for the proper and efficient operation
and maintenance of parking within the Common Areas. Landlord shall have the
right to construct, maintain and operate lighting facilities within the parking
areas; to change the area, level, location and arrangement of the parking areas
and improvements therein; to restrict parking by tenants, their officers, agents
and employees to employee parking areas; after the expiration of the initial
eighty-four (84)-month Term of this Lease, to enforce parking charges (by
operation of or otherwise); and to do and perform such other acts in and to the
parking areas and improvements therein as, in the of good business judgment,
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Landlord shall determine to be advisable. Any person using the parking area
shall observe all directional signs and arrows and any posted speed limits. In
no event shall Tenant interfere with the use and enjoyment of the parking area
by other tenants of the Project or their employees or invitees. Parking areas
shall be used only for parking vehicles. Washing, waxing, cleaning or servicing
of vehicles, or the storage of vehicles for 24-hour periods, is prohibited
unless otherwise authorized by Landlord. Tenant shall be liable for any damage
to the parking areas caused by Tenant or Tenant's employees, suppliers,
shippers, customers or invitees, including without limitation damage from excess
oil leakage. Tenant shall have no right to install any fixtures, equipment or
personal property in the parking areas. Landlord agrees to enforce all parking
rights and restrictions and rules and regulations for the Project on an equal
and non-discriminatory basis. Tenant shall have no liability for non-compliance
with the provisions of the Lease regarding parking other than with respect to
Tenant's officers, directors and employees or persons under the control of
Tenant, except for Landlord's towing rights herein provided.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Project, or to the attendant
fixtures, equipment and Common Areas. Landlord may at any time relocate or
remove any of the various buildings (other than the Building), parking areas,
and other Common Areas, and may add buildings and areas to the Project from time
to time. No change shall entitle Tenant to any abatement of rent or other claim
against Landlord, provided that the change does not deprive Tenant of reasonable
access to or use of the Premises or the Common Areas, including parking
facilities.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall comply with all applicable laws and governmental regulations governing the
Premises and make all repairs necessary to keep the Premises in the condition as
existed on the Commencement Date (or on any later date that the improvements may
have been installed), excepting ordinary wear and tear, including without
limitation the electrical and mechanical systems, any air conditioning,
ventilating or heating equipment which serves the Premises, all walls, glass,
windows, doors, door closures, hardware, fixtures, electrical, plumbing, fire
extinguisher equipment and other equipment; provided, however, Tenant shall have
no obligation to repair, maintain or replace the roof, foundations, footings,
structural systems, exterior glass, sky lights, sky light seals, window seals
and vents, electrical, plumbing, sewer and other utility lines outside the
Premises, landscaping, walkways, fencing, parking areas, exterior lighting or
exterior surfaces of exterior walls of the Building, and washing of exterior
windows, all of which obligations shall be the sole responsibility of Landlord
as provided in Section 7.2 below, subject to the terms of said Section 7.2
(including, without limitation, the provisions for "pass through" of such
expenses as Building Costs as therein provided). Any damage or deterioration of
the Premises shall not be deemed ordinary wear and tear if the same could have
been prevented by good maintenance practices by Tenant. As part of its
maintenance obligations hereunder, Tenant shall, at Landlord's request, provide
Landlord with copies of all maintenance schedules, reports and notices prepared
by, for or on behalf of Tenant. Tenant shall obtain preventive maintenance
contracts from a licensed heating and air conditioning contractor to provide for
regular inspection at maintenance of the heating, ventilating and air
conditioning systems servicing the Premises, all subject to Landlord's approval.
All repairs shall be at least equal in quality to the original work, shall be
made only by a licensed contractor approved in writing in advance by Landlord
and shall be made only at the time or times approved by Landlord. Any contractor
utilized by Tenant shall be subject to Landlord's standard requirements for
contractors, as modified from time to time. Landlord shall have the right at all
times to inspect Tenant's maintenance of all equipment (including without
limitation air conditioning, ventilating and heating equipment), and may impose
reasonable restrictions and requirements with respect to repairs, as provided in
Section 7.3, and the provisions of Section 7.4 shall apply to all repairs.
Alternatively, Landlord may elect to make any repair or maintenance required
hereunder on behalf of Tenant and at Tenant's expense, and Tenant shall promptly
reimburse Landlord for all reasonable costs incurred upon submission of an
invoice. Landlord agrees not-to unreasonably withhold its approval of any
preventive maintenance contracts or licensed contractors selected by tenant with
respect to Tenant's maintenance and repair obligations.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR/TENANT'S "SELF-HELP".
Subject to Section 7.1 and Article XI, Landlord shall provide service,
maintenance and repair with respect to the roof, foundations, and footings of
the Building, all landscaping, walkways, parking areas, Common Areas, exterior
lighting, and the exterior surfaces of the exterior walls and windows of the
Building, except that Tenant at its expense shall make all repairs which
Landlord deems reasonably necessary as a result of the act or negligence of
Tenant, its agents, employees, invitees, subtenants or contractors. Landlord
shall have the right to employ or designate any reputable person or firm,
including any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord need
not make any other improvements or repairs except as specifically required under
this Lease, and nothing contained in this Section shall limit Landlord's right
to reimbursement from Tenant for maintenance, repair costs and replacement costs
as provided elsewhere in this Lease. Tenant understands that it shall not make
repairs at Landlord's expense or by rental offset. Tenant further understands
that Landlord shall not be required to make any repairs to the roof, foundations
or footings unless and until Tenant has notified Landlord in writing of the need
for such repair and Landlord shall have a reasonable period of time thereafter
to commence and complete said repair, if warranted. Except as expressly provided
in Sections 2.4 and 4.2(f) above, all reasonable costs of any maintenance and
repairs on the part of Landlord provided hereunder shall be considered part of
Building Costs.
If Landlord shall fail to perform any repair obligations required under
this Lease within thirty (30) days following Tenant's written request for such
repairs, or if Landlord shall fail to perform any repairs required under this
Lease of an emergency condition within forty-eight (48) hours' written notice
from Tenant, then Tenant may elect to make such repairs at Landlord's expense by
complying with the following provisions. Before making any such repair, Tenant
shall deliver to Landlord a notice for the need for such repair ("Self-Help
Notice"), which notice shall specifically advise Landlord that Tenant intends to
exercise its self-help right hereunder. Should Landlord fail
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within ten (10) days following receipt of the Self-Help Notice (or within
twenty-four (24) hours following notice in the event of necessary emergency
repairs), to commence the necessary repair or to make other arrangements
reasonably satisfactory to Tenant, then Tenant shall have the right to make such
repair on behalf of Landlord. Landlord shall reimburse Tenant for the reasonable
costs of such repairs within thirty (30) days following receipt of Tenant's
invoice for such costs, provided that in no event shall Tenant have the right to
offset Basic Rent or any other charges payable by Tenant hereunder against such
costs. It is understood that such reimbursement obligation shall be personal to
Landlord, and in no event shall any lender or other deed of trust holder
succeeding to Landlord be liable for payment of any such amount. In the event
that the work could affect the Building's structural, mechanical, electrical,
heating, ventilating, air conditioning, life safety or plumbing components or
systems, then Tenant shall use only those contractors whose names are furnished
by Landlord for such work. If those contractors are unwilling or unable to
perform the work, or if Landlord fails to furnish the names of its contractors
to Tenant prior to the commencement of the work by Tenant, Tenant shall retain
the services of qualified, reputable and licensed, bonded contractors with like
Experience in similar building systems. Tenant shall be responsible for
obtaining any necessary governmental permits before commencing the repair work.
Tenant shall be liable for any damage, loss or injury resulting from said work
to the extent of Tenant's or its agent's, employee's or contractor's negligence.
Any disputes regarding these self-help provisions shall be submitted to and
resolved by JAMS arbitration pursuant to Section 22.7 of this Lease.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion.
Notwithstanding the foregoing: (A) Landlord shall not unreasonably withhold its
consent to any alterations, additions or improvements to the Premises which cost
less than One Dollar ($1.00) per square foot of the improved portions of the
Premises (excluding warehouse square footage) and do not (i) affect the exterior
of the Building or outside areas (or be visible from adjoining sites), or (ii)
affect or penetrate any of the structural portions of the Building, including
but not limited to the roof, or (iii) require any change to the basic floor plan
of the Premises, any change to any structural or mechanical systems of the
Premises, or any governmental permit as a prerequisite to the construction
thereof, or (iv) interfere in any manner with the proper functioning of or
Landlord's access to any mechanical, electrical, plumbing or HVAC systems,
facilities or equipment located in or serving the Building, or (v) diminish the
value of the Premises; and (B) Landlord shall not unreasonably withhold its
consent to an upgrade of the Building's electrical system and the installation
of a freight elevator and double doors for light shipping and receiving
functions in the Building. Landlord may impose, as a condition to its consent,
any requirement that Landlord in its reasonable discretion may deem reasonable
or desirable, including but not limited to a requirement that all work be
covered by a lien and completion bond satisfactory to Landlord (not to exceed
one hundred fifty percent (150%) of the cost of the work), and requirements as
to the manner, time, and contractor for performance of the work. Tenant shall
obtain all required permits for the work and shall perform the work in
compliance with all applicable laws, regulations and ordinances, all covenants,
conditions and restrictions affecting the Project, and the Rules and Regulations
(hereafter defined). Tenant understands and agrees that Landlord shall be
entitled to a supervision fee in the amount of three percent (3%) of the cost of
such work requiring a permit from the City of San Diego. If any governmental
entity requires, as a condition to any proposed alterations, additions or
improvements to the Premises by Tenant, that improvements be made to the Common
Areas, and if Landlord consents to such improvements to the Common Areas, then
Tenant shall, at Tenant's sole expense, make such required improvements to the
Common Areas in such manner, utilizing such materials, and with such contractors
(including, if required by Landlord, Landlord's contractors) as Landlord may
require in its sole discretion, Under no circumstances shall Tenant make any
improvement which incorporates any Hazardous Materials, including without
limitation asbestos-containing construction materials into the Premises. Any
request for Landlord's consent shall be made in writing and shall contain
architectural plans describing the work in detail reasonably satisfactory to
Landlord. Unless Landlord otherwise agrees in writing, all alterations,
additions or improvements affixed to the Premises (excluding moveable trade
fixtures and furniture) shall become the property of Landlord and shall be
surrendered with the Premises at the end of the Term, except that Landlord may,
by notice to Tenant, require Tenant to remove by the Expiration Date, or sooner
termination date of this Lease, all or any alterations, decorations, fixtures,
additions, improvements and the like installed either by Tenant or by Landlord
at Tenant's request and to repair any damage to the Premises arising from that
removal. Except as otherwise provided in this Lease or in any Exhibit to this
Lease, should Landlord make any alteration or improvement to the Premises for
Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all
costs incurred.
As of the expiration or earlier termination of the Term, Landlord shall
have the right to require Tenant to remove any subsequent alterations, additions
or improvements, whether or not Landlord's consent was required, but only if
Landlord's written consent was obtained and if, at the time of providing its
consent following a written request by Tenant as to whether or not Landlord
would require such removal, Landlord notified Tenant in writing that Tenant
would have to remove such items upon the expiration of the Lease Term. Landlord
and Tenant agree that Tenant shall have the right, upon expiration or
termination of this Lease, to remove any and all phone systems, furniture,
fixtures and other personal property which are not permanently affixed to the
Premises or which may be removed without significant change to the Premises
(including floor coverings, draperies, and/or removable shelves) that are
installed in the Premises at Tenant's sole expense; provided, however, that
Tenant shall, at its sole cost, repair any damage caused by such removal,
reasonable wear and tear excepted.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause
any such lien to be released by posting a bond in accordance with California
Civil Code Section 3143 or any successor statute. In the event that Tenant shall
not, within thirty (30) days following the imposition of any lien, cause the
lien to be released of record by payment or posting of a proper bond, Landlord
shall have, in addition to all other available remedies, the right to cause the
lien to be released by any means it deems proper, including payment of or
defense against the claim giving rise to the lien. All reasonable and actual
expenses so incurred by Landlord, including Landlord's reasonable attorneys'
fees, and any foreseeable consequential or other damages incurred by Landlord
proximately caused by such lien, shall be reimbursed by Tenant promptly
following
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Landlord's demand, together with interest from the date of payment by Landlord
at the maximum rate permitted by law until paid. Tenant shall give Landlord no
less than twenty (20) days' prior notice in writing before commencing
construction of any kind on the Premises so that Landlord may post and maintain
notices of nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon at least twenty-four (24) hours' prior written or oral notice
(except in emergencies, when no notice shall be required) have the right to
enter the Premises to inspect them, to supply services in accordance with this
Lease, to protect the interests of Landlord in the Premises, and to submit the
Premises to prospective or actual purchasers or encumbrance holders (or, during
the last one hundred and eighty (180) days of the Term or when an uncured Tenant
default exists, to prospective tenants), all without being deemed to have caused
an eviction of Tenant and without abatement of rent except as provided elsewhere
in this Lease. Landlord shall have the right, if desired, to retain a key which
unlocks all of the doors in the Premises, excluding Tenant's vaults and safes,
and Landlord shall have the right to use any and all means which Landlord may
deem proper to open the doors in an emergency in order to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord shall not under any
circumstances be deemed to be a forcible or unlawful entry into, or a detainer
of, the Premises, or any eviction of Tenant from the Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay all taxes and assessments
levied against all personal property of Tenant located in the Premises, against
all improvements to the Premises made by Landlord or Tenant which are above
Landlord's Project standard in quality and/or quantity for comparable space
within the Project ("Above Standard Improvements"), and against any alterations,
additions or like improvements made to the Premises by or on behalf of Tenant.
When possible Tenant shall cause its personal property, Above Standard
Improvements and alterations to be assessed and billed separately from the real
property of which the Premises form a part. If any taxes on Tenant's personal
property, Above Standard Improvements and/or alterations are levied against
Landlord or Landlord's property and if Landlord pays the same, or if the
assessed value of Landlord's property is increased by the inclusion of a value
placed upon the personal property, Above Standard Improvements and/or
alterations of Tenant and if Landlord pays the taxes based upon the increased
assessment, Tenant shall pay to Landlord the taxes so levied against Landlord or
the proportion of the taxes resulting from the increase in the assessments In
calculating what portion of any tax bill which is assessed against Landlord
separately, or Landlord and Tenant jointly, is attributable to Tenant's Above
Standard Improvements, alterations and personal property, Landlord's reasonable
determination shall be conclusive.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES. (a) Notwithstanding any provision of
this Lease to the contrary, Tenant will not, either voluntarily or by operation
of law, assign, sublet, encumber, or otherwise transfer all or any part of
Tenant's interest in this lease, or permit the Premises to be occupied by anyone
other than Tenant, without Landlord's prior written consent, which consent shall
not unreasonably be withheld or delayed, all in accordance with the provisions
of Section 9.1(b). No assignment (whether voluntary, involuntary or by operation
of law) and no subletting shall be valid or effective without Landlord's prior
written consent and, at Landlord's election, any such assignment or subletting
or attempted assignment or subletting shall constitute a material default of
this Lease. Landlord shall not be deemed to have given its consent to any
assignment or subletting by any other course of action, including its acceptance
of any name for listing in the Building directory. To the extent not prohibited
by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and
its creditors, administrators and assigns waives the applicability of Section
365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for
the estate of the bankrupt meets Landlord's standard for consent as set forth in
Section 9.1(b) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord an
instrument confirming that assumption.
(b) If Tenant desires to transfer an interest in this Lease, it
shall first notify Landlord of its desire and shall submit in writing to
Landlord: (i) the name and address of the proposed transferee; (ii) the nature
of any proposed subtenant's or assignee's business to be carried on in the
Premises; (iii) the terms and provisions of any proposed sublease or assignment,
including a copy of the proposed assignment or sublease form; (iv) evidence of
insurance of the proposed assignee or subtenant complying with the requirements
of Exhibit D hereto; (v) a completed Environmental Questionnaire from the
proposed assignee or subtenant; and (vi) any other information reasonably
requested by Landlord and reasonably related to the transfer. Except as provided
in Subsection (e) of this Section, Landlord shall not unreasonably withhold its
consent, provided: (1) the use of the Premises will be consistent with the
provisions of this Lease; (2) the proposed assignee or subtenant has not been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property
arising out of the proposed assignee's or subtenant's actions or use of the
property in question and is not subject to any enforcement order issued by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material; (3) at Landlord's election, insurance requirements shall be
brought into conformity with Landlord's then current leasing practice; (4) any
proposed subtenant or assignee demonstrates that it is financially responsible
by submission to Landlord of all information as Landlord may reasonably request
concerning the proposed subtenant or assignee, including, but not limited to, a
balance sheet of the proposed subtenant or assignee as of a date within ninety
(90) days of the request for Landlord's consent and statements of income or
profit and loss of the proposed subtenant or assignee for the two-year period
preceding the request for
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Landlord's consent, and/or a certification signed by the proposed subtenant or
assignee that it has not been evicted or been in arrears in rent at any other
leased premises for the 3-year period preceding the request for Landlord's
consent; (5) any proposed subtenant or assignee demonstrates to Landlord's
reasonable satisfaction a record of successful experience in business; (6) the
proposed assignee or subtenant is not an existing tenant of the Project or a
prospect with whom Landlord is negotiating to become a tenant at the Project;
and (7) the proposed transfer will not impose additional burdens or adverse tax
effects on Landlord. Tenant's exterior signage rights described in Section 5.2
of this Lease may be assigned in connection with an assignment of the Lease, but
only if the name proposed for such Exterior Signage will not materially devalue
the Project in Landlord's sole and absolute discretion.
If Landlord consents to the proposed transfer, Tenant may
within ninety (90) days after the date of the consent effect the transfer upon
the terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set forth
in this Section. Landlord shall approve or disapprove any requested transfer
within fifteen (15) business days following receipt of Tenant's written request,
the information set forth above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above, in
lieu of consenting to a proposed assignment of this Lease or to any proposed
subletting of an entire floor (or more than an entire floor) of the Premises,
Landlord may elect to (i) sublease the Premises (or the portion proposed to be
subleased), or take an assignment of Tenant's interest in this Lease, upon the
same as offered to the proposed subtenant or assignee (excluding terms relating
to the purchase of personal property, the use of Tenant's name or the
continuation of Tenant's business), or (ii) terminate this Lease as to the
portion of the Premises proposed to be subleased or assigned with a
proportionate abatement in the rent payable under this Lease, effective on the
date that the proposed sublease or assignment would have become effective.
Landlord may thereafter, at its option, assign or re-let any space so recaptured
to any third party, including without limitation the proposed transferee of
Tenant.
(d) Tenant agrees that fifty percent (50%) of any amounts paid by
the assignee or subtenant, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the case of a sublease of a portion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion, plus
(ii) Tenant's direct out-of-pocket costs such as tenant improvement or moving
costs and brokerage commissions which Tenant certifies to Landlord have been
paid to provide occupancy related services to such assignee or subtenant of a
nature commonly provided by landlords of similar space, shall be the property of
Landlord and such amounts shall be payable directly to Landlord by the assignee
or subtenant or, at Landlord's option, by Tenant. At Landlord's request, a
written agreement shall be entered into by and among Tenant, Landlord and the
proposed assignee or subtenant confirming tile requirements of this subsection.
(e) Tenant shall pay to Landlord a fee of Five Hundred Dollars
($500.00) if and when any transfer hereunder is requested by Tenant. Such fee is
hereby acknowledged as a reasonable amount to reimburse Landlord for its costs
of review and evaluation of a proposed assignee/sublessee, and Landlord shall
not be obligated to commence such review and evaluation unless and until such
fee is paid.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and for
the due performance of all of Tenant's obligations, under this Lease. No
transfer shall be binding on Landlord unless any document memorializing the
transfer is delivered to Landlord and both the assignee/subtenant and Tenant
deliver to Landlord an executed consent to transfer instrument prepared by
Landlord and consistent with the requirements of this Article. The acceptance by
Landlord of any payment due under this Lease from any other person shall not be
deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any transfer. Consent by Landlord to one or more transfers shall not
operate as a waiver or estoppel to the future enforcement by Landlord of its
rights under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:
(a) Each and every provision contained in this Lease (other than
with respect to the payment of rent hereunder) is incorporated by reference into
and made a part of such sublease, with "Landlord" hereunder meaning the
sublandlord therein and "Tenant" hereunder meaning the subtenant therein.
(b) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the sublease rentals. Landlord shall not, by reason
of this assignment or the collection of sublease rentals, be deemed liable to
the subtenant for the performance of any of Tenant's obligations under the
sublease. Tenant hereby irrevocably authorizes and directs any subtenant, upon
receipt of a written notice from Landlord stating that an uncured default exists
in the performance of Tenant's obligations under this Lease, to pay to Landlord
all sums then and thereafter due under the sublease. Tenant agrees that the
subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord.
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(c) In the event of the termination of this Lease, Landlord may,
at its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without limitation
those pertaining to insurance and indemnification, shall be deemed incorporated
by reference into the sublease despite the termination of this Lease.
SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business) or,
if Tenant is a corporation, an unincorporated association, or a partnership, the
transfer, assignment or hypothecation of any stock or interest in such
corporation, association, or partnership in the aggregate of fifty percent (50%)
(except for publicly traded shares of stock constituting a transfer of fifty
percent (50%) or more in the aggregate, so long as no change in the controlling
interest of Tenant occurs as a result thereof) shall be deemed an assignment
within the meaning and provisions of this Article. Notwithstanding the
foregoing, Landlord's consent shall not be required for the assignment of this
Lease to any entity controlling or under common control with Tenant, or as a
result of a merger, acquisition, consolidation or reorganization by or of Tenant
with or into another entity (any of the foregoing successor entities being
herein referred to as a "Tenant Affiliate"), so long as (i) the net worth of the
successor entity after such assignment is at least equal to the greater of the
net worth of Tenant as of the execution of this Lease by Landlord or the net
worth of Tenant immediately prior to the date of such assignment, evidence of
which, satisfactory to Landlord, shall be presented to Landlord prior to such
assignment, (ii) Tenant shall provide to Landlord, prior to such assignment,
written notice of such assignment documentation and other information as
Landlord may request in connection therewith, and (iii) all of the other terms
and requirements of this Article shall apply with respect to such assignment,
except for the terms and requirements of Section 9.1 which shall not apply to
such assignment.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord shall provide the following
types of insurance, in amounts and coverages as may be determined by Landlord in
its reasonable discretion provided such amounts, coverages and deductibles are
reasonable and comparable to coverages maintained on comparable properties in
the area: "all risk" property insurance, subject to standard exclusions covering
the Building and the Project, and commercial general liability coverage in
amounts of not less than Two Million Dollars ($2,000,000.00) on an "occurrence"
basis. Further, Landlord may, in its sole and absolute discretion, obtain
coverage for such other risks as Landlord or its mortgagees may from time to
time deem appropriate, including without limitation, coverage for leasehold
improvements and/or earthquake and flood (provided, however, that the cost of
earthquake and flood insurance shall not be included as an Operating Expense
unless Landlord elects or is required to carry such coverage on the entire
Project). Landlord shall not be required to carry insurance of any kind on
Tenant's property, including leasehold improvements, trade fixtures,
furnishings, equipment, plate glass, signs and all other items of personal
property, and shall not be obligated to repair or replace that property should
damage occur. All proceeds of insurance maintained by Landlord upon the Building
and Project shall be the property of Landlord, whether or not Landlord is
obligated to or elects to make any repairs. At Landlord's option, Landlord may
self-insure all or any portion of the risks for which Landlord elects to provide
insurance hereunder, provided, however, that in the event that Landlord
transfers its fee interest in the Project including the Premises (other than to
an entity affiliated with, controlled, controlling or under common control with
Landlord, or in which Landlord retains an interest), such transferee shall
demonstrate a financial net worth of at least Fifty Million Dollars
($50,000,000.00), and in the absence of such financial net worth, such
transferee shall instead maintain insurance coverage as required by this Section
10.2 from third-party insurance carrier(s).
SECTION 10.3. JOINT INDEMNITY.
(a) To the fullest extent permitted by law, but subject to the
express limitations on liability contained in Section 10.5 of this Lease, Tenant
shall defend, indemnify, protect, save and hold harmless Landlord, its agents,
and any and all affiliates of Landlord, including, without limitation, any
corporations or other entities controlling, controlled by or under common
control with Landlord, from and against any and all claims, liabilities, costs
or expenses arising either before or after the Commencement Date from Tenant's
use or occupancy of the Premises, or from the conduct of its business, or from
any activity, work, or thing done, permitted or suffered by Tenant or its
agents, employees, invitees or licensees in or about the Premises, or from any
negligence or willful misconduct of Tenant or its agents, employees, visitors,
patrons, guests, invitees or licensees. In cases of alleged negligence asserted
by third parties against Landlord which arise out of, are occasioned by, or in
any way attributable to Tenant's, its agents, employees, contractors, licensees
or invitees use and occupancy of the Premises, or from the conduct of its
business or from any activity, work or thing done, permitted or suffered by
Tenant or its agents, employees, invitees or licensees on Tenant's part to be
performed under this Lease, or from any negligence or willful misconduct of
Tenant, its agents, employees, licensees or invitees, Tenant shall accept any
tender of defense for Landlord and shall, notwithstanding any allegation of
negligence or willful misconduct on the part of the Landlord (but subject to the
reimbursement provisions hereinafter provided), defend Landlord and protect and
hold Landlord harmless and pay all costs, expenses and attorneys' fees incurred
in connection with such litigation, provided that Tenant shall not be liable for
any such injury or damage, and Landlord shall reimburse Tenant for the
reasonable attorney's fees and costs for the attorney representing both parties,
all to the extent and in the proportion that such injury or damage is ultimately
determined by a court of competent jurisdiction (or in connection with any
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negotiated settlement agreed to by Landlord) to be attributable to the
negligence or willful misconduct of Landlord. Upon Landlord's request, Tenant
shall at Tenant's sole cost and expense, retain a separate attorney selected by
Landlord and reasonably acceptable to Tenant to represent Landlord in any such
suit if Landlord reasonably determines that the representation of both Tenant
and Landlord by the same attorney would cause a conflict of interest; provided,
however, that to the extent and in the proportion that the injury or damage
which is the subject of the suit is ultimately determined by a court of
competent jurisdiction (or in connection with any negotiated settlement agreed
to by Landlord) to be attributable to the negligence or willful misconduct of
Landlord, Landlord shall reimburse Tenant for the reasonable legal fees and
costs of the separate attorney retained by Tenant. The provisions of this
Subsection 10.3(a) shall expressly survive the expiration or sooner termination
of this Lease.
(b) To the fullest extent permitted by law, but subject to the
express limitations on liability contained in this Lease (including, without
limitation, the provisions of Sections 10.4, 10.5 and 14.8 of this Lease),
Landlord shall defend, indemnify, protect, save and hold harmless Tenant, its
agents and any and all affiliates of Tenant, including, without limitation, any
corporation, or other entities controlling, controlled by or under common
control with Tenant, from and against any and all claims, liabilities, costs or
expenses arising either before or after the Commencement Date from the
operation, maintenance or repair of the Common Areas, the Project and/or the
Building by Landlord or its employees or authorized agents. In cases of alleged
negligence asserted by third parties against Tenant which arise out of, are
occasioned by, or in any way attributable to the maintenance or repair of the
Common Areas, the Project or the Building by Landlord or its authorized agents
or employees, Landlord shall accept any tender of defense for Tenant and shall,
notwithstanding any allegation of negligence or willful misconduct on the part
of Tenant (but subject to the reimbursement provisions hereinafter provided),
defend Tenant and protect and hold Tenant harmless and pay all cost, expense and
attorneys' fees incurred in connection with such litigation, provided that
Landlord shall not be liable for any such injury or damage, and Tenant shall
reimburse Landlord for the reasonable attorney's fees and costs for the attorney
representing both parties, all to the extent and in the proportion that such
injury or damage is ultimately determined by a court of competent jurisdiction
(or in connection with any negotiated settlement agreed to by Tenant) to be
attributable to the negligence or willful misconduct of Tenant. Upon Tenant's
request, Landlord shall at Landlord's sole cost and expense, retain a separate
attorney selected by Tenant and reasonably acceptable to Landlord to represent
Tenant in any such suit if Tenant Reasonably determines that the representation
of both Tenant and Landlord by the same attorney would cause conflict of
interest; provided, however, that to the extent and the proportion that the
injury or damage which is the subject of the suit is ultimately determined by a
court of competent jurisdiction (or in connection with any negotiated settlement
agreed to by Tenant) to be attributable to the negligence or willful misconduct
or Tenant, Tenant shall reimburse Landlord for the reasonable legal fees and
costs of the separate attorney retained by Landlord. The provisions of this
Subsection 10.3(b) shall expressly survive the expiration or sooner termination
of this Lease.
SECTION 10.4. LANDLORD'S NONLIABILITY. Subject to the express indemnity
obligations contained in Section 10.3(b) of this Lease, Landlord shall not be
liable to Tenant, its employees, agents and invitees, and Tenant hereby waives
all claims against Landlord for loss of or damage to any property or personal
injury, or any other loss, cost, damage, injury or liability whatsoever
resulting from fire, explosion, failing plaster, steam, gas, electricity, water
or rain which may leak or flow from or into any part of the Premises or from the
breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building. Notwithstanding any provision
of this Lease to the contrary, including, without limitation, the provisions of
Section 10.3(b) of this Lease, Landlord shall in no event be liable to Tenant,
its employees, agents, and invitees, and Tenant hereby waives all claims against
Landlord, for loss or interruption of Tenant's business or income (including,
without limitation, any consequential damages and lost profit or opportunity
costs), or any other loss, cost, damage, injury or liability resulting from, but
not limited to, Acts of God (except with respect to restoration obligations
pursuant to Article XI below), acts of civil disobedience or insurrection, acts
or omissions (criminal or otherwise) of any third parties (other than Landlord's
employees or authorized agents), including without limitation, any other tenants
within the Project or their agents, employees, contractors, guests or invitees.
It is understood that any such condition may require the temporary evacuation or
closure of all or a portion of the Building. Except as provided in Sections 11.1
and 12.1 below, there shall be no abatement of rent and no liability of Landlord
by reason of any injury to or interference with Tenant's business (including
without limitation consequential damages and lost profit or opportunity costs)
arising from the making of any repairs, alterations or improvements to any
portion of the Building, including repairs to the Premises, nor shall any
related activity by Landlord constitute an actual or constructive eviction;
provided, however, that in making repairs, alterations or improvements, Landlord
shall interfere as little as reasonably practicable with the conduct of Tenant's
business in the Premises. Neither Landlord nor its agents shall be liable for
interference with light or other similar intangible interests. Tenant shall
immediately notify Landlord in case of fire or accident in the Premises, the
Building or the Project and of defects in any improvements or equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's events on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against under
any "all risk" property insurance policies required by this Article X; provided
however, that (i) the foregoing waiver shall not apply to the extent of Tenant's
obligations to pay deductibles under any such policies and this Lease, and (ii)
if any loss is due to the act, omission or negligence or willful misconduct of
Tenant or its agents, employees, contractors, guests or invitees, Tenant's
liability insurance shall be primary and shall cover all losses and damages
prior to any other insurance hereunder. By this waiver it is the intent of the
parties that neither Landlord nor Tenant shall be liable to any insurance
company (by way of subrogation or otherwise) insuring the other party for any
loss or damage insured against under any "all-risk" property insurance policies
required by this Article, even though such loss or damage might be occasioned by
the negligence of such party, its agents, employees, contractors, guests or
invitees. The provisions of this Section shall not limit the indemnification
provisions elsewhere contained in this Lease.
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ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building is damaged, Landlord shall diligently repair
that damage as soon as reasonably possible, at its expense, unless: (i) Landlord
reasonably determines that the cost of repair is not covered by Landlord's fire
and extended coverage insurance (or, if Landlord is self-insuring, would not be
covered by a standard all-risk policy, subject to standard exclusions), plus
such additional amounts Tenant elects, at its option, to contribute, excluding
however the deductible (for which Tenant shall be responsible for Tenant's
proportionate share); (ii) Landlord reasonably determines that the Premises
cannot, with reasonable diligence, be fully repaired by Landlord (or cannot be
safely repaired because of the presence of hazardous factors, including without
limitation Hazardous Materials, earthquake faults, and other similar dangers)
within two hundred seventy (270) days after the date of the damage; (iii) an
event of default by Tenant has occurred and is continuing beyond any applicable
cure period at the time of such damage; or (iv) the damage occurs during the
final twelve (12) months of the Term. Should Landlord elect not to repair the
damage for one of the preceding reasons, Landlord shall so notify Tenant in
writing within sixty (60) days after the damage occurs and this Lease shall
terminate as of the date of that notice.
(b) Unless Landlord elects to terminate this Lease in accordance
with subsection (a) above, this Lease shall continue in effect for the remainder
of the Term; provided that so long as Tenant is not in default under this Lease
beyond any applicable cure period, if the damage is so extensive that Landlord
reasonably determines that the Premises cannot, with reasonable diligence, be
repaired by Landlord (or cannot be safely repaired because of the presence of
hazardous factors, earthquake faults, and other similar dangers) so as to allow
Tenant's substantial use and enjoyment of the Premises within two hundred
seventy (270) days after the date of damage, then Tenant may elect to terminate
this Lease by written notice to Landlord within the sixty (60) day period stated
in subsection (a).
(c) Commencing on the date of any damage to the Building, and
ending on the sooner of the date the damage is repaired or the date this Lease
is terminated, the rental to be paid under this Lease shall be abated in the
same proportion that the floor area of the Building that is rendered unusable by
the damage from time to time bears to the total floor area of the Building, but
only to the extent that any rental abatement insurance proceeds are received by
Landlord therefor from Tenant's insurance described in Exhibit D.
(d) Notwithstanding the provisions of subsections (a), (b) and
(c) of this Section, and subject to the provisions of Section 10.5 above, the
cost of any repairs shall be borne by Tenant, and Tenant shall not be entitled
to rental abatement or termination rights, if the damage is due to the fault or
neglect of Tenant or its employees, subtenants, invitees or representatives. In
addition, the provisions of this Section shall not be deemed to require Landlord
to repair any improvements or fixtures that Tenant is obligated to repair or
insure pursuant to any other provision of this Lease.
(e) Tenant shall fully cooperate with Landlord in removing
Tenant's personal property and any non-structural debris from the Premises to
facilitate all inspections of the Premises and the making of any repairs.
Notwithstanding anything to the contrary contained in this Lease, if Landlord in
good faith believes there is a risk of injury to persons or damage to property
from entry into the Building or Premises following any damage or destruction
thereto, Landlord may restrict entry into the Building or the Premises by
Tenant, its employees, agents and contractors in a non-discriminatory manner,
without being deemed to have violated Tenant's rights of quiet enjoyment to, or
made an unlawful detainer of, or evicted Tenant from, the Premises. Upon
request, Landlord shall consult with Tenant to determine if there are safe
methods of entry into the Building or the Premises solely in order to allow
Tenant to retrieve files, data in computers, and necessary inventory, subject
however to all indemnities and waivers of liability from Tenant to Landlord
contained in this Lease and any additional indemnities and waivers of liability
which Landlord may require. If damage or destruction rendering the Premises
unusable occurs during the final twelve (12) months of the Lease Term or the
final twelve (12) months of any extension period which cannot be repaired within
sixty (60) days following such damage or destruction, Tenant shall have the
option to terminate the Lease by providing Landlord written notification of
Tenant's election to terminate within thirty (30) days after the damage occurs.
For all purposes of this Section 11.1, damage to Tenant's parking areas and
access to the Premises shall be deemed damage to the Building.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises which materially impairs Tenant's ability to conduct business from
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Premises is
taken or sold in lieu of taking, and if Landlord elects to restore the Premises
in such a way as to alter the Premises materially, either party may terminate
this Lease, by written notice to the other party, effective on the date of
vesting of title. In the event neither party has elected to terminate this Lease
as provided above, then Landlord shall promptly, after receipt of a sufficient
condemnation award, proceed to restore the Premises to substantially their
condition prior to the taking, and a proportionate allowance shall be made to
Tenant for the rent corresponding to the time during which, and to the part of
the Premises of which, Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest of
Tenant; provided that nothing in this Section shall be deemed to jive Landlord
any interest in, or prevent Tenant from seeking any award against the
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taking authority for, the taking of personal property and fixtures belonging to
Tenant or for relocation or business interruption expenses recoverable from the
taking authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Building; provided that if
Landlord fails to make that substitution within ninety (90) days following the
taking and if the taking materially impairs Tenant's use and enjoyment of the
Premises, Tenant may, at its option, terminate this Lease by written notice to
Landlord. If this Lease is not so terminated by Tenant, there shall be no
abatement of rest and this Lease shall continue in effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease shall
be either superior or subordinate to all ground or underlying leases, mortgages
and deeds of trust, if any, which may hereafter affect the Premises, and to all
renewals, modifications, consolidations, replacements and extensions thereof,
provided, that so long as Tenant is not in default under this Lease beyond any
applicable cure period, this Lease shall not be terminated or Tenant's quiet
enjoyment of the Premises disturbed in the event of termination of any such
ground or underlying lease, or the foreclosure of any such mortgage or deed of
trust, to which Tenant has subordinated this Lease pursuant to this Section. Any
such subordination instrument presented for Tenant's signature shall be in form
reasonably acceptable to Tenant and shall contain nondisturbance provisions for
Tenant's benefit substantially in accordance with the provisions for Tenant's
benefit set forth in this Section. In the event of a termination or foreclosure,
Tenant shall become a tenant of and attorn to the successor-in-interest to
Landlord upon the same terms and conditions as are contained in this Lease, and
shall execute any instrument reasonably required by Landlord's successor for
that purpose. Tenant shall also, upon written request of Landlord, execute and
deliver all instruments as may be required from time to time to subordinate the
rights of Tenant under this Lease to any ground or underlying lease or to the
lien of any mortgage or deed of trust (provided that such instruments include
the nondisturbance and attornment provisions set forth above in form reasonably
acceptable to Tenant), or, if requested by Landlord, to subordinate, in whole or
in part, any ground or underlying lease or the lien of any mortgage or deed of
trust to this Lease. Landlord represents and warrants to Tenant that, as of the
execution of this Lease by Landlord, there is no ground or underlying lease or
mortgage lien or deed of trust encumbering the Premises.
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time upon not less than ten (10)
business days prior written notice from Landlord, execute, acknowledge and
deliver to Landlord, in any form that Landlord may reasonably require, a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of the modification and
certifying that this Lease, as modified, is in full force and effect) and the
dates to which the rental, additional rent and other charges have been paid in
advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there are
no uncured defaults on the part of Landlord, or specifying each default if any
are claimed, and (iii) setting forth all further information that Landlord may
reasonably require. Tenant's statement may be relied upon by any prospective
purchaser or encumbrancer of the Premises.
(b) Notwithstanding any other rights and remedies of Landlord,
Tenant's failure to deliver any estoppel statement within the provided time
shall be conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) there are no
uncured defaults in Landlord's performance, and (iii) not more than one month's
rental has been paid in advance.
SECTION 13.3. FINANCIALS.
(a) Tenant shall deliver to Landlord, prior to the execution of
this Lease and thereafter at any time upon Landlord's request, Tenant's current
tax returns and financial statements, certified true, accurate and complete by
the chief financial officer of Tenant, including a balance sheet and profit and
loss statement for the most recent prior year (collectively, the "Statements"),
which Statements shall accurately and completely reflect the financial condition
of Tenant. Landlord agrees that it will keep the Statements confidential, except
that Landlord shall have the right to deliver the same to any proposed purchaser
of the Building or Project (provided that any such purchaser shall agree to keep
said Statements confidential), and to any encumbrancer of all or any portion of
the Building or Project (provided that Landlord shall request that any such
encumbrancer keep said Statements confidential).
(b) Tenant acknowledges that Landlord is relying on the
Statements in its determination to enter into this Lease, and Tenant represents
to Landlord, which representation shall be deemed made on the date of this Lease
and again on the Commencement Date, that no material change in the financial
condition of Tenant, as reflected in the Statements, has occurred since the date
Tenant delivered the Statements to Landlord. The Statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of submission by any Statements to
Landlord.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:
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(a) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of three (3) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 116l(a) as amended. For purposes of these default and
remedies provisions, the term "additional rent" shall be deemed to include all
amounts of any type whatsoever other than Basic Rent to be paid by Tenant
pursuant to the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the
Lease by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord (except as provided under the express provisions of
Article IX above).
(c) The discovery by Landlord that any financial statement
provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was
materially false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII, where the failure continues
for a period of three (3) days after written notice from Landlord to Tenant.
(e) The failure or inability by Tenant to observe or perform any
of the express or implied covenants or provisions of this Lease to be observed
or performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant or such shorter period as is specified in
any other provision of this Lease; provided, however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California Code
of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature
of the failure is such that more than thirty (30) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commences the cure within thirty (30) days, and thereafter diligently pursues
the cure to completion.
(f)(i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, or in the event of the
abandonment of the Premises by Tenant, then in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to possession of
the Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant:
(1) The worth at the time of award of the unpaid
rent and additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by
which the unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonably avoided;
(3) The worth at the time of award of the amount by
which the unpaid rent and additional rent for the balance of the Term after the
time of award exceeds the amount of such loss that Tenant proves could be
reasonably avoided;
(4) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result from Tenant's default, including, but not limited to, the
cost of recovering possession of the Premises, refurbishment of the Premises,
marketing costs, commissions and other expenses of relenting, including
necessary repair, the unamortized portion of any tenant improvements and
brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorneys' fees, and any other reasonable costs; and
(5) At Landlord's election, all other amounts in
addition to or in lieu of the foregoing as may be permitted by law. The term
"rent" as used in this Lease shall be deemed to mean the Basic Rent and all
other sums required to be paid by Tenant to Landlord pursuant to the terms of
this Lease. Any sum, other than Basic Rent, shall be computed on the basis of
the average monthly amount accruing during the twenty-four (24) month period
immediately prior to default, except that if it becomes necessary to compute
such rental
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before the twenty-four (24) month period has occurred, then the computation
shall be on the basis of the average monthly amount during the shorter period.
As used in subparagraphs (1) and (2) above, the "worth at the time of award"
shall be computed by allowing interest at the rate of ten percent (10%) per
annum. As used in subparagraph (3) above, the "worth at the time of award" shall
be computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.
(b) Landlord shall be under no obligation to observe or perform
any covenant of this Lease on its part to be observed or performed which accrues
after the date of any default by Tenant unless and until the default is cured by
Tenant, it being understood and agreed that the performance by Landlord of its
obligations under this Lease are expressly conditioned upon Tenant's full and
timely performance of its obligations under this Lease. The various rights and
remedies reserved to Landlord in this Lease or otherwise shall be cumulative
and, except as otherwise provided by California law, Landlord may pursue any or
all of its rights and remedies at the same time.
(c) No delay or omission of Landlord to exercise any right or
remedy shall be construed as a waiver of the right or remedy or of any default
by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys to the Premises prior to the termination of this Lease, and
the delivery of the keys to any employee shall not operate as a termination of
the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not received by
Landlord within five (5) days of the date when due shall bear interest at the
rate of ten percent (10%) per annum not to exceed the maximum rate permitted by
law from the date due until fully paid. The payment of interest shall not cure
any default by Tenant under this Lease. In addition, Tenant acknowledges that
the late payment by tenant to Landlord of rent will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult and impracticable to ascertain. Those costs may include, but
are not limited to, administrative, processing and accounting charges, and late
charges which may be imposed on Landlord by the terms of any ground lease,
mortgage or trust deed governing the Premises. Accordingly, if any rent due from
Tenant shall not be received by Landlord or Landlord's designee within five (5)
days after the date due, then Tenant shall pay to Landlord, in addition to the
interest provided above, a late charge in a sum equal to the greater of five
percent (5%), of the amount overdue or Two Hundred Fifty Dollars ($250.00) for
each delinquent payment, provided that such late charge shall be waived for the
initial late payment of any rent as and when due from Tenant. Acceptance of a
late charge by Landlord shall not constitute a waiver of Tenant's default with
respect to the overdue amount, nor shall it prevent Landlord from exercising any
of its other rights and remedies.
(b) Following the third installment of rent that is not paid
within five (5) days following notice of nonpayment from Landlord, Landlord
shall have the option (i) to require that beginning with the first payment of
rent next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that Tenant
increase the amount, if any, of the Security Deposit by one hundred percent
(100%). Should Tenant deliver to Landlord, at any time during the Term, two (2)
or more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent, or fails to perform any
other act on its part to be performed under this Lease, and the failure
continues beyond any applicable grace period set forth in Section 14.1, then in
addition to any other available remedies, Landlord may, at its election make the
payment or perform the other act on Tenant's part. Landlord's election to make
the payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent. Landlord
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shall provide Tenant with written notice and the appropriate cure period
provided in the Lease before performing any act on behalf of Tenant and will
provide Tenant with written request for any reimbursement payable under this
Section 14.4.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to de in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion. If Landlord shall default in the performance of any of
its obligations under the Lease (after notice and an opportunity to cure as
provided herein), Tenant shall have the right to pursue any and all remedies
available to it as set forth in this Lease, at law, or in equity, subject to the
express limitations contained in this Lease.
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier termination
of this Lease, including without limitation all costs, expenses and actual
accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten percent
(10%) per annum. Should either Landlord or Tenant bring any action in connection
with this Lease, the prevailing party shall be entitled to recover as a part of
the action its reasonable attorneys' fees, and all other costs. The prevailing
party for the purpose of this paragraph shall be determined by the trier of the
facts.
SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE
WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
AND/OR ANY CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do
not constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners.
Should Tenant recover a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord in
the Project and out of the rent or other income from such property receivable by
Landlord or out of consideration received by Landlord from the sale or other
disposition of all or any part of Landlord's right, title or interest in the
Project, and no action for any deficiency may be sought or obtained by Tenant.
SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand
or right of any kind by Tenant which is based upon or arises in connection with
this Lease shall be barred unless Tenant commences an action thereon within
twelve (12) months after the date that the act, omission, event or default upon
which the claim, demand or right arises, has occurred. The foregoing provisions,
however, shall not be applicable to any claim, demand or right of Tenant arising
from or related to any obligation on Landlord's part contained in Section 5.3
and/or 10.3(b) of this Lease.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only; such holding over with
the prior written consent of Landlord shall constitute a month-to-month tenancy
commencing on the first (1st) day following the termination of this Lease. In
either of such events, possession shall be subject to all of the terms of this
Lease, except that the monthly Basic Rent shall be the greater of (a) one
hundred fifty percent (150%) of the Basic Rent for the month immediately
preceding the date of termination for the initial two (2) months of holdover,
and two hundred percent (200%) of the Basic Rent for the in the immediately
preceding the date of termination for each month of holdover thereafter, or (b)
the then currently scheduled Basic Rent for comparable space in the Project. If
Tenant fails to surrender the Premises upon the expiration of this Lease despite
demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless
from all loss or liability, including without limitation, any claims made by any
succeeding tenant relating to such failure to surrender. Acceptance by Landlord
of rent after the termination shall not constitute a consent to a holdover or
result in a renewal of this Lease. The foregoing provisions of this Section are
in addition to and do not affect Landlord's right of re-entry or any other
rights of Landlord under this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
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SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
from the Premises all personal property and debris, except for any items that
Landlord may by written authorization allow to remain. Tenant shall repair all
damage to the Premises resulting from the removal, which repair shall include
the patching and filling of holes and repair of structural damage, provided that
Landlord may instead elect to repair any structural damage at Tenant's expense.
If Tenant shall fail to comply with the provisions of this Section following ten
(10) days' written notice from Landlord and failure to cure, Landlord may effect
the removal and/or make any repairs, and the cost to Landlord shall be
additional rent payable by Tenant upon demand. If Tenant fails to remove
Tenant's personal property from the Premises upon the expiration of the Term,
Landlord may remove, store, dispose of and/or retain such personal property, at
Landlord's option, in accordance with then applicable laws, all at the expense
of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord an instrument in writing releasing and quitclaiming to
Landlord all right, title and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction
or offset, in lawful money of the United States to Landlord at its address set
forth in item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered in person or by courier
or overnight delivery service to the other party, or may be deposited in the
United States mail, duly registered or certified, postage prepaid, return
receipt requested, and addressed to the other party at the address set forth in
Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from
and after the Commencement Date, at the Premises (whether or not Tenant has
departed from, abandoned or vacated the Premises), or may be delivered by
telegram, telex or telecopy, provided that receipt thereof is telephonically
confirmed. Either party may, by written notice to the other, served in the
manner provided in this Article, designate a different address. If any notice or
other document is sent by mail, it shall be deemed served or delivered
twenty-four (24) hours after mailing. If more than one person or entity is named
as Tenant under this Lease, service of any notice upon any one of them shall be
deemed as service upon all of them. Unless the Lease expressly provides
otherwise, all payments shall be due and payable within ten (10) days of demand.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules
and Regulations attached as Exhibit E, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, and Project and Common Areas (if
applicable). Landlord shall not be liable to Tenant for any violation of the
Rules and Regulations or the breach of any covenant or condition in any lease by
any other tenant or such tenant's agents, employees, contractors, quests or
invitees. One or more waivers by Landlord of any breach of the Rules and
Regulations by Tenant or by any other tenant(s) shall not be a waiver of any
subsequent breach of that rule or any other. Tenant's failure to keep and
observe the Rules and Regulations shall constitute a default under this Lease.
In the case of any conflict between the Rules and Regulations and this Lease,
this Lease shall be controlling. Tenant's agreement to abide by, keep and
observe all reasonable rules and regulations which Landlord may make shall be
limited to those rules and restrictions which are consistently applied by
Landlord to all tenants of the Project in a non-discriminatory manner.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by Tenant in connection with
the negotiation of this Lease. The foregoing agreement shall survive the
termination of this Lease. If Tenant fails to take possession of the Premises or
if this Lease otherwise terminates prior to the Expiration Date as the result of
failure of performance by Tenant, Landlord shall be entitled to recover from
Tenant the unamortized portion of any brokerage commission funded by Landlord in
addition to any other damages to which Landlord may be entitled.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises, the
transferor shall thereupon be automatically relieved of all obligations on the
part of Landlord accruing under this Lease from and after the date of the
transfer (but shall not be relieved of all such obligations accruing during its
period of ownership of the Premises), provided that: (i) any funds held by the
transferor in which Tenant has an interest (including, without limitation, the
Security Deposit) shall be turned over by credit to the purchase price or
otherwise, subject to that interest, to the transferee and Tenant is notified of
the transfer as required by law, and (ii) any such transferee shall assume, in
writing, all non-accrued obligations of Landlord under this Lease.
Notwithstanding the foregoing, no
24
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holder of a mortgage and/or deed of trust to which this Lease is or may be
subordinate, and no landlord under a so-called sale-leaseback, shall be
responsible in connection with the Security Deposit, unless the mortgagee or
holder of the deed of trust or the landlord actually receives the Security
Deposit. It is intended that the covenants and obligations contained in this
Lease on the part of Landlord shall, subject to the foregoing, be binding on
Landlord, its successors and Assigns, only during and in respect to their
respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to
the performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have. The
failure of Tenant or Landlord to seek redress for violation of, or to insist
upon the strict performance of, any term, covenant or condition of the Lease
shall not be deemed a waiver of such violation or prevent a subsequent act which
would have originally, constituted a violation from having all the force and
effect of the original violation, nor shall any custom or practice which may
become established between the parties in the administration of the terms hereof
be deemed a waiver of, or in any way affect, the right of a party to insist upon
the performance by the other party of its obligations in strict accordance with
said terms. Any payment of rents or other sums hereunder by Tenant shall not, in
and of itself, be deemed a waiver of any preceding breach by Landlord, of any
term, covenant or condition of this Lease, regardless of Tenant's knowledge of
such preceding breach at the time of payment of such rent or other sums.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this ease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of
all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.
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SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease
shall be effective unless in writing signed by authorized signatories of Tenant
and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Project, either directly or indirectly,
without the prior written consent of Landlord, provided, however, that Tenant
may disclose the terms to prospective subtenants or assignees under this Lease,
in conjunction with any public offering of Tenant's stock or if required by law
to do so.
SECTION 22.2. GUARANTY. [INTENTIONALLY OMITTED].
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Project, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Premises
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord (which in no event
shall be less than sixty (60) days), including, if necessary to effect the cure,
time to obtain possession of the Premises by power of sale or judicial
foreclosure provided that such foreclosure remedy is diligently pursued. Tenant
agrees that each beneficiary of a deed of trust or mortgage covering the
Premises is an express third party beneficiary hereof, Tenant shall have no
right or claim for the collection of any deposit from such beneficiary from any
purchaser at a foreclosure sale unless such beneficiary or purchaser shall have
actually received and not refunded the deposit, and Tenant shall comply with any
written directions by any beneficiary to pay rent due hereunder directly to such
beneficiary without determining whether an event of default exists under such
beneficiary's deed of trust.
SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used in
each separate provision.
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SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide guard service or other
security measures for the benefit of the Premises or the Project. Tenant assumes
all responsibility for the protection of Tenant, its agents, invitees and
property from acts of third parties. Nothing herein contained shall prevent
Landlord, at its sole option, from providing security protection for the Project
or any part thereof, in which event the cost thereof shall be included within
the definition of Building Costs.
SECTION 22.7. JAMS ARBITRATION.
(a) All claims or disputes between Landlord and Tenant arising
out of, or relating to the Lease which either party is expressly authorized by a
provision hereof to submit to arbitration, shall be decided by the
JAMS/ENDISPUTE, or its successor, in Orange, California ("JAMS"), unless the
parties mutually agree otherwise. Within ten (10) business days following
submission to JAMS, JAMS shall designate three arbitrators and each party may,
within five (5) business days thereafter, veto one of the three persons so
designated. If two different designated arbitrators have been vetoed, the third
arbitrator shall hear and decide the matter. Any arbitration pursuant to this
Section 22.7 shall be decided within thirty (30) days of submission of JAMS. The
decision of the arbitrator shall be final and binding on the parties. All costs
associated with arbitration shall be awarded to the prevailing party as
determined by the arbitrator.
(b) Notice of the demand for arbitration by either party to the
Lease shall be filed in writing with the other party to the Lease and with JAMS
and shall be made within a reasonable time after the dispute has arisen. The
award rendered by the arbitrators shall be final, and judgment may be entered
upon it in accordance with applicable law in any court having jurisdiction
thereof. Except by written consent of the person or entity sought to be joined,
no arbitration arising out of or relating to the Lease shall include, by
consolidation, joinder or in any other manner, any person or entity not a party
to the Lease under which such arbitration is filed if (1) such person or entity
is substantially involved in a common question of fact or law, (2) the presence
of such person or entity is required if complete relief is to be accorded in the
arbitration, or (3) the interest or responsibility of such person or entity in
the matter is not insubstantial.
(c) The agreement herein among the parties to the Lease and any
other written agreement to arbitrate referred to herein shall be specifically
enforceable under prevailing law.
LANDLORD: TENANT:
THE IRVINE COMPANY DISCOVERY PARTNERS INTERNATIONAL,
INC., a California corporation
By: /s/ Richard G. Sim By: /s/ Jack Fitzpatrick
-------------------------------------- -------------------------------
Richard G. Sim, Name: Jack Fitzpatrick
Executive Vice President Title: CFO
By: /s/ Clarence W. Barker By: /s/ Riccardo Pigliucci
-------------------------------------- -------------------------------
Clarence W. Barker, Name: Riccardo Pigliucci
President, Irvine Industrial Company, Title: CEO
a division of The Irvine Company
27
<PAGE> 1
EXHIBIT 10.46
Dated 22nd December 1997
JAMES ANDREW GIBSON & PAULINE MARINA GIBSON
and
IRORI (EUROPE) LIMITED
LEASE
of
UNIT 5
TARPORLEY BUSINESS CENTRE
TARPORLEY
CHESHIRE
Bowcock Cuerden
South Cheshire House
<PAGE> 2
A LEASE dated 22nd December 1997
PARTIES:
1. The Landlord: JAMES ANDREW GIBSON and PAULINE MARINA GIBSON T/A J A and
P M Gibson (Properties) of Four Lane Ends Tarporley Cheshire CW6 9HL
2. The Tenant: IRORI (EUROPE) LIMITED whose registered office is at
Carmelite 50 Victoria Embankment Blackfriars London EC4Y 0DX
DEFINITIONS:
1. Plan A: The attached plan marked "A"
2. Plan B: The attached plan marked "B"
3. The Building: The Building of which the Premises form part
4. The Premises: Unit 5 Tarporley Business Centre for identification only
edged red on plan A including:
(i) all glass in the windows
(ii) those Conduits within the Premises and which exclusively serve them
(iii) the paint and other finishes applied to the interior of all the walls
bounding the Premises
(iv) any wall wholly inside the Premises
(v) the doors and door frames and the Interior of the window frames
Excluding:
(i) the remainder of the walls bounding the Premises
(ii) those Conduits which do not exclusively serve the Premises
5. The Term: 5 years 22nd December 1997
6. The Rent:
6.1 1 peppercorn from 22nd December 1997 until 18th January 1998
6.2 Pound Sterling15,000 per year from 19th January until 21st October 2002
1.
<PAGE> 3
6.3 1 peppercorn from 22nd October 2002 until 21st December 2002
7. Rent Days: 25th March, 24th June, 29th September and 25th December in
each year of the Term
8. The Further Rent: The amount which the Landlord pays as premium
(including any additional premium payable because of the Tenant's act)
for insuring the Building of which the Premises form part and Landlord's
fixtures including the plate glass windows for their reinstatement value
against the Perils
9. The Perils: Loss or damage by fire explosion lightning aircraft (other
than hostile aircraft) and things dropped from aircraft flood storm or
tempest bursting or overflowing of water tanks apparatus pipes boilers
or healing equipment riot civil commotion or malicious damage subsidence
and heave road vehicles and such other risks as the Landlord shall from
time to time reasonably determine including but not limited to
demolition and site clearance costs professional fees relating to the
Premises' reinstatement and three years' loss of Rent
10. The Rate: 3% above the base lending rate from time to time of the Royal
Bank of Scotland PLC or any other Bank substituted by a written notice
by the Landlord to the Tenant
11. Landlord's Expenditure: all Landlord's costs expenses and payments
properly and reasonably incurred for:
11.1 a Tenant's application for a consent or approval
11.2 seeking or collecting any rent or further rent or other payment properly
due from the Tenant under this Lease not paid within fourteen days of
its due date
2.
<PAGE> 4
11.3 dealing at the Landlord's discretion with any Tenant's breach of any of
the Tenant's obligations as outlined in Operative 2 and 11 of this Lease
11.4 a Law of Property Act 1925 Section 146 Notice even if forfeiture is
avoided other than by relief granted by the Court
11.5 a schedule of dilapidations
11.6 abating by authority order a nuisance which the Tenant caused
11.7 an insurance valuation of the Premises not more often than annually
11.8 unless the Landlord can recover it VAT on:
11.8.1 any payment by the Landlord which the Tenant has to reimburse and
11.8.2 (subject to production of a VAT invoice) any other Tenant's payments
under this Lease
12. Landlord's Consent: the Landlord's previous written consent or Licence
13. The Estate: the Land for identification only edged red on plan B with
the buildings now or in future on it
14. The Let Property: the parts of the Estate let or intended to be let by
the Landlord
15. Conduits: pipes cables wires and other channels for the passage of gas
water soil electricity and other services and all ancillary apparatus
16. The Reserved Property: parts of the Estate not included in the Let
Property including:
16.1 the parts of the Estate not occupied now or in future by buildings
16.2 the parking spaces internal Estate Roads paths forecourts landscaped
refuse and other common areas
16.3 the entrances halls staircases passages landings lavatories kitchens and
other internal parts used in common by more than one tenant within the
buildings on the Estate
3.
<PAGE> 5
16.4 the internal parts of the buildings on the Estate allocated from time to
time by the Landlord for exclusive use of the Landlord or the Landlord's
staff
16.5 the main structural and load-bearing parts of all buildings on the
Estate including the roof and foundations external parts of those
buildings (other than the glass in the external windows of the Let
Property and the interior faces of any external walls bounding the Let
Property) and all joists between the floors and ceilings
16.6 those Conduits which do not exclusively serve the Let Property
16.7 the Estate's boundary structures
17. The Landlord's Financial Year: The 12 months starting on lst February
each year or such other annual period substituted by a written notice by
the Landlord to the Tenant
18. The Service Charge: The aggregate amount of the expenditure specified in
operative provision 11 part B
19. The Tenant's proportion: The proportion of the Service Charge
attributable to the premises calculated under operative provision 11
part A
20. The Rights: Subject to the Tenant's payment of the rents reserved by and
observance and performance of the Tenant's obligations in this Lease the
rights:
20.1 to park not more than one vehicle on each of 6 car parking spaces ("the
spaces') within the Reserved Property which the Landlord may from time
to time allocate
20.2 to use for access to and from the Premises and the spaces with or
without vehicles the Estate Roads
20.3 to use for access to and from the Premises on foot only the Estate
footpaths
20.4 of passage and running of services through those of the Conduits not
included in this Lease
4.
<PAGE> 6
20.5 to put refuse in a receptacle provided by the Landlord on such part of
the Reserved Property designated by the Landlord from time to time
20.6 to display a sign of a design approved by the Landlord (such approval
not to be unreasonably withheld or delayed) in a place designated by the
Landlord from time to time
21. The Reservations: The rights for the Landlord and the other tenants or
occupiers of any of the other Let Property
21.1 of passage and running of gas water soil electricity and other services
through those of the Conduits which serve the Let Property and the
Reserved Property and any other part of the Estate
21.2 to enter at reasonable times for all reasonable purposes on not less
than 24 hours notice (except in case of emergency) with or without
equipment on the Premises to perform the Landlord's obligations and
exercise the Landlord's rights
21.3 to carry out building or other work on the remainder of the Estate as
the Landlord thinks fit notwithstanding any interference with or damage
to the Premises or that access or enjoyment of light or air to the
Premises is diminished provided always that any damage caused to the
Premises is remedied by the Landlord at its own cost and forthwith
21.4 to enjoy all other rights and similar matters now or in future enjoyed
by any other part of the Estate
22. VAT: Value Added Tax or any similar tax which is substituted for or
added to it
23. The Estate Roads: The roads and other access ways within the Estate
INTERPRETATION AND EFFECT:
1. References to:
5.
<PAGE> 7
1.1 the Premises include to any part to any estate or interest and to any
fixtures and fittings or additions
1.2 the parties include their respective successors and those whom they
authorise
1.3 acting doing or causing include permitting or omitting
1.4 the end of the Term include its premature end
1.5 an authority include any appropriate competent authority including a
legislating body
2. Nothing in this Lease constitutes a Landlord's election to waive
exemption for VAT purpose or an agreement to do so or not to do so
3. Whenever a party is more than one person obligations are joint and
individual
4. Rights are to be exercised and obligations complied with:
4.1 so as to cause as little damage and inconvenience as possible and with
any damage caused being made good promptly
4.2 at reasonable times and on reasonable notice except in an emergency
5. Proportions and values from time to time appropriate (other than under
Operative Provision 7) will be as conclusively certified by the
Landlord's then Surveyor save in the case of manifest error
6. Amounts referred to (except in Operative Provision 2.8) are annual and
amounts for other periods will be proportions
7. All Tenant's payments are to be made without deduction or set-off
irrespective of any other rights which the Tenant may have against the
Landlord
OPERATIVE:
1. The Landlord leases the Premises to the Tenant
1.1 for the Term
6.
<PAGE> 8
1.2 with the Rights
1.3 except and reserving the Reservations
1.4 subject to the Tenant paying
1.4.1 the Rent by equal instalments in advance on the Rent Days
1.4.2 by way of additional rent
1.4.2. 1. the Further Rent on the Rent Day following the Landlord's payment of
the premium
1.4.2. 2. the Tenant's proportion of the Service Charge in accordance with
operative provision 11
2. The Tenant undertakes the following obligations
2.1 Pay:
2.1.1 As provided in 1.4 the Rent by Standing Order the Further Rent and the
Tenant's proportion of the Service Charge including throughout any
extension of the Term
2.1.2 as additional Rent interest at the Rate before and after judgement and
compounded quarterly on any amount due (including further to Definition
11) from the Tenant to the Landlord from when payment becomes due until
payment is made (both dates inclusive)
2.1.3 on demand and indemnify the Landlord against:
(a) the Premises' taxes and other outgoings including for any period of the
Term during which the Premises remain unoccupied or unused
(b) Landlord's Expenditure
2.2 Keep the Premises in good repair to the reasonable satisfaction of the
Landlord's then Surveyor (except for damage by any Peril (provided that
payment of the Policy money is not withheld or refused by reason of the
Tenants Acts)) and in a clean and tidy state and
7.
<PAGE> 9
leave them at the end of the Term in that condition empty except for
Landlord's fixtures and with additions removed if the Landlord so
requires
2.3 Competently paper or paint in a colour which the Landlord approves with
two coats of good quality paint the previously papered or painted parts
of the interior of the Premises in every fifth year and in the year
before the end of the term and carry out appropriate treatment after the
painting or papering
2.4 Within 2 months of receipt or sooner if necessary carry out work for
which the Tenant is liable specified in a Landlord's notice and if the
Tenant defaults in performance of the Tenant's obligations under
operative provisions 2.2 and 2.3 allow the Landlord to enter the
Premises in accordance with Interpretation and Effect paragraph 4 and
repair or decorate at the Tenant's cost payable within 14 days of demand
2.5 Immediately on receiving a proposal order or notice affecting the
Premises send a copy of it to the Landlord and on the Landlord's
reasonable request and at the joint and equal cost of the Landlord and
the Tenant join in contesting anything in it
2.6 Comply with and indemnify the Landlord against and allow the Landlord to
comply (even if enjoyment of the property is restricted) with the
requirements of any local public or other competent Authority and of the
Premises' insurers
2.7 Not:
2.7.1 Without Landlord's consent
(a) alter or add to the Premises or any Conduit but in the case of
alterations or additions which do not affect the structure or external
appearance of the Premises the Landlord will not unreasonably withhold
or delay that consent
8.
<PAGE> 10
(b) use the Premises other than for any use within Class B.1 in the Schedule
to the Town and Country Planning (Use Classes) Order 1987
(c) (which consent the Landlord will not unreasonably withhold or delay
exhibit any sign or advertisement on or in the Premises
2.7.2 do anything:
(a) which may adversely affect the Premises or nearby properties or their
occupants
(b) by which the insurance of the Premises becomes void voidable or more
expensive
2.7.3 carry out any material development as defined by or contravene the Town
and Country Planning Acts as at any time in force
2.7.4 allow any right to be acquired against the Premises but notify the
Landlord of any attempt in this respect and at the joint and equal cost
of the Landlord and the Tenant take whatever steps the Landlord
reasonably and properly requires to defeat the attempt
2.7.5 Underlet or part with possession of the Premises except by way of an
underletting of the whole in compliance with the following conditions:
2.7.5 1. The Tenant must obtain the Landlord's prior written consent which the
Landlord will not unreasonably withhold or delay
2.7.5 2. If the Landlord so requires any underlessee must enter into direct
covenants with the Landlord to observe the provisions of this Lease
providing in the case of a private limited company underlessee suitable
guarantors
2.7.5 3. The proposed underlease must not be granted at a premium nor at a
rent less than the greater of the best rent reasonably obtainable in the
open market and the rent payable under this Lease
9.
<PAGE> 11
2.7.5 4. The underlease must contain an agreement authorised by a court to
exclude the provisions of Landlord and Tenant Act 1954 Sections 24-28
inclusive
2.7.6 Assign the Premises except in compliance with the following conditions
2.7.6 1. The Tenant must obtain the Landlord's prior written consent which the
Landlord will not unreasonably withhold or delay
2.7.6 2. Such persons as the Landlord may reasonably require must act as
guarantor for the intended assignee in such form as the Landlord may
reasonably require
2.7.6 3. The Tenant must enter into an authorised guarantee agreement in such
form as the Landlord may reasonably require guaranteeing the intended
assignee's performance of the Tenant's obligations in this Lease
including (inter alia) the provisions permitted by Landlord and Tenant
(Covenants) Act 1995
2.7.6 4. The intended Assignee must demonstrate by reference to properly
audited and certified accounts for each of the three complete financial
years immediately preceding the date of the Tenant's application for
consent to assign that it has achieved annual net profits after tax
which are no less than the aggregate of the then annual rent payable
under this Lease multiplied by 3 provided that if the intended assignee
provides a rent deposit of an amount equal to 12 months' rent at the
rate then payable under this Lease and enters into a Rent Deposit Deed
with the Landlord in the same terms (so far as possible) as the Rent
Deposit Deed entered into by the Landlord and the Tenant of even date
(notwithstanding Definition 7 and Operative 3.1.2 of that Deed) the
Landlord will not be entitled also to insist that the intended assignee
demonstrates by reference to properly audited or certified accounts for
each of the three complete financial years immediately preceding the
date of the Tenant's application for consent to assign that it
10.
<PAGE> 12
has achieved annual net profits after tax which are no less than the
aggregate of the then annual rent payable under this Lease multiplied by
3
2.8 Within one month of any transfer charge underlease or other devolution
of the Premises register it with the Landlord's then solicitors and pay
them a fee of Pound Sterling30
2.9 Keep the windows clean and tidy
2.10 Allow the Landlord without interruption
2.10.1 during the Term's last six months to:
(a) take details of items to be left at the end of the Term
(b) display on the Premises a notice about their reletting
(c) show the Premises to prospective new Tenants upon not less than 24 hours
notice previously supplied to the Tenant
2.10.2 at any time to:
(a) display on the Premises a notice about their sale
(b) permit prospective buyers tenants or mortgagees to inspect the Premises
upon not less than 24 hours notice previously supplied to the Tenant
(c) inspect the Premises's condition
(d) enter the Premises and remedy any Tenants breach of obligation and
perform or observe the Landlord's obligations and exercise the
Landlord's rights
2.11 Not:
2.11.1 Obstruct the parts of the Estate over which the Tenant gains access to
the Premises other tenants gain access to the Let Property and the
Landlord obtains access to the Reserved Property
2.11.2 Place or store any items on the Reserved Property
11.
<PAGE> 13
2.12 Comply with the appropriate Fire Authority's requirements and keep the
Premises properly equipped with fire-fighting and extinguishing
equipment
2.13 Comply with the Landlord's regulations for the management of the Estate
2.14 The Tenant will indemnify the Landlord against:
2.14.1 Any costs claims liability or loss which the Landlord incurs or suffers
as a result of the Tenants failure to notify the Landlord of a change in
the VAT status of the Tenant or the VAT group of which the Tenant is a
member or the use to which the Tenant puts the Premises and
2.14.2 Any irrecoverable VAT costs incurred by the Landlord as a result of the
use to which the Tenant puts the Premises
3. The Landlord covenants:
3.1 with the tenant for quiet enjoyment
3.2 to keep the Tenant fully and effectively indemnified at all times
against all costs claims liabilities actions and expenses arising from
any past present or future breach or breaches by the Landlord of any of
the owner's obligations contained in an Agreement dated 20 June 1986
made between Satnam Investments Limited (1) and Vale Royal District
Council (2) and in an Agreement dated 28 October 1987 and made between
Northscene Limited (1) and Vale Royal District Council (2)
4. The Landlord will:
4.1 (Unless the insurance is vitiated by the Tenants acts) insure the
Building of which the Premises form part for their full reinstatement
value in respect of the Perils
4.2 Subject to the Tenant paying the Tenant's proportion of the Service
Charge repair and maintain the parts of the Building not included within
the Premises and the Reserved
12.
<PAGE> 14
Property provided always that the Landlord may not at any time during
the Term or thereafter hold the Tenant liable for any costs arising from
any damaged or decaying timber on the exterior of the Premises unless
the Tenant's acts cause the damage or decay
4.3 If the Premises are destroyed or damaged by a Peril and provided that:
4.3.1 Payment of the Policy money is not withheld or refused by reason of the
Tenant's acts and
4.3.2 The Landlord can obtain necessary planning and other consents
Use the proceeds of the policy (except money paid for professional fees
and loss of rent) in reinstatement of the Premises
5. If the Premises become unfit for use through any Peril the Rent or a
fair proportion will be suspended for three years or (if earlier) until
when they are again fit for use and occupation unless the fault is the
Tenant's or an underlessee's
6. The Landlord may (in addition to and without affecting any other right)
repossess the Premises and this Lease will immediately come to an end
although the Landlord's other rights will remain if:
6.1 any money due to the Landlord remains unpaid for twenty-one days whether
formally demanded or not or
6.2 there is any other Tenant's breach of obligation or
6.3 an individual Tenant becomes bankrupt or has an interim Receiver of his
property appointed or
6.4 a company Tenant goes into liquidation (other than for amalgamation or
reconstruction of a solvent company) or has a receiver or administrator
appointed or
6.5 the Tenant enters into an arrangement for the benefit of creditors or
13.
<PAGE> 15
6.6 distress or execution is levied on the Tenant's goods
7.1 Any dispute (other than about a result of Interpretation Provision 5)
will be conclusively resolved by an appropriate independent expert who
shall be appointed on the application of either the Landlord or the
Tenant and who must allow both parties to make representations to him
and whose fees and expenses are to be borne as he may direct
7.2 The expert under 7.1 will be appointed (if the parties cannot agree on
his identity) at the instance of either of them by the then President of
the Royal Institute of Chartered Surveyors whose fee will be paid by the
Landlord and the Tenant in equal proportions
8. Subject to Landlord & Tenant Act 1954 Section 38(2) neither the Tenant
nor an underlessee will be entitled to compensation under Section 37 of
that Act on leaving the Premises
9. The parts of this Lease headed "Definitions" and "Interpretation and
Effect' are integral parts of it
10. The parties agree that:
10.1 Nothing in this Lease:
10.1.1 Implies that the premises are fit for the use authorised by operative
provision 2.7.1(b)
10.1.2 Makes the Landlord liable to the Tenant in connection with the
Landlord's obligations if performance or observance of those obligations
becomes impossible (by reason of any act or occurrence beyond the
control of the Landlord) or illegal
10.1.3 Will operate to grant to the Tenant any right other than those expressly
granted by this Lease
10.2 Demand and/or acceptance of rent by the Landlord is not and does not
imply waiver of any breach of the Tenant's obligations
14.
<PAGE> 16
10.3 The Landlord will not be liable to the Tenant:
10.3.1 For any interruption in the services within the Service Charge or any
consequential loss or damage or for any other reason beyond the
Landlord's control provided always that in the event of any such
interruption or any consequential loss or damage or any other reason the
Landlord shall use its reasonable endeavours to ensure that the
situation is remedied
10.3.2 In any event in connection with non-performance or non-observance of the
Landlord's obligations unless the Tenant gives written notice to the
Landlord of the facts giving rise to the non-performance or
non-observance and the Landlord fails to remedy the non-performance or
non-observance within 2 months in which case the Landlord will only be
liable to compensate the Tenant for loss or damage after that time has
elapsed
11. Part A.
1. The Landlord's Surveyor will decide and notify the Tenant in writing of
the Service Charge and the Tenant's proportion
2. The Landlord will as soon as possible after today and then after 31st
January each year (or such other date ("the new date') on which the
Landlord's financial year ends) provide the Tenant with a written
estimate of the Service Charge for the following Service Charge year and
the Tenant's proportion
3. The Tenant will pay that proportion by equal instalments in advance on
the Rent Days (or proportionately for a period less than a quarter) the
first payment to be made for the period between today and the next
quarter day within 14 days of notification of its amount to the Tenant
15.
<PAGE> 17
3.1 If the Landlord does not notify the estimate of the Service Charge and
Tenant's proportion for any Service Charge year before the quarter day
preceding the start of that year the Tenant will continue to pay the
Tenant's proportion at the rate last payable until the Landlord gives
the notification
3.2 The Tenant will within 14 days of receipt of that notification pay the
difference between the new amount of the Tenant's proportion and the
amount paid for the preceding quarter or quarters up to the next quarter
day
4. Unless prevented by causes beyond the Landlord's control the Landlord
will as soon as possible after 31 January or the new date in each year
provide the Tenant with an accountant's certificate ("the Certificate')
of the Service Charge for the previous Service Charge year and the
Tenant's proportion
5. The Tenant will within 14 days of receipt pay any balance shown by the
Certificate to be due from the Tenant in respect of any previous Service
Charge year
6. If the amounts paid by the Tenant exceed the Tenants proportion of the
certified Service Charge the Landlord will credit the excess against the
Tenant's next instalments
7. The Landlord's Surveyor's determination (acting reasonably and properly)
of the estimated Service Charge will be final and bind the parties
8. The Landlord's Surveyor may reasonably adjust the Service Charge and
Tenant's proportion if the Estate is altered added to or re-developed
9. The Landlord's omission to include any amount in the Service Charge for
any Service Charge year will not preclude its inclusion in any
subsequent year
10. The Tenant may not object to any item of the Service Charge by reason
that the materials work or service in question could have been obtained
at lower cost though in the interests
16.
<PAGE> 18
of good estate management the Landlord and/or the Landlord's surveyor
will use reasonable endeavours to ensure that the cost of providing the
services shall be competitive
Part B.
The Service Charge comprises all costs incurred or paid:
11. By the Landlord for insuring all parts of the Estate other than the Let
Property
12. For cleaning draining emptying lighting repairing renewing maintaining
and rebuilding the Reserved Property (which for the benefit of doubt
excludes any part of the Premises)
13. For maintaining hot and cold water and drainage systems in the Premises
the boilers and apparatus which supply them generators which the
Landlord may wish to install and once during the Term but no more for
painting and cleaning the exterior of the Building including any and all
external timber subject always to the provisions of Operative 4.2
14. For employing caretaking managing or other staff for the Estate
15. For refuse disposal
16. For providing and maintaining a Fire Alarm System
17. For complying with all Statutory provisions applicable to the Estate
which are not the responsibility of tenants of the Let Property
18. For paying the Reserved Property's outgoings
19. For complying with the requirements of any public local or other
competent authority in connection with the Reserved Property
20. For collecting any arrears of rent payable by the Tenant
21. To any Solicitor Accountant Surveyor Valuer Agent Architect or other
professional adviser or other professional adviser properly and
reasonably employed by the Landlord
17.
<PAGE> 19
in the management or maintenance of the Estate including the cost of
preparing statements of the Service Charge
22. For doing any work or providing any services which the Landlord
reasonably considers necessary or desirable or for the benefit of the
Tenant or for maintaining or improving the Reserved Property or the
Estate in the interest of the tenants including such amount as the
Landlord thinks fit as a reasonable provision for anticipated future
expenditure and (if the Landlord does not employ advisers in accordance
with operative 11.B.21) a management fee payable to the Landlord of 5%
of the aggregate of such costs including labour
12. The parties certify that there is no Agreement for Lease to which this
Lease gives effect
DELIVERED having been signed as ) JAG /s/ illegible
Deed by the LANDLORD in the ) -----------------------------------
presence of: )
)
Witness Signature: /s/ illegible ) PMG /s/ illegible
------------------ ) -----------------------------------
)
Address: South Cheshire House )
Manor Rd. )
Nantwich )
Occupation: Solicitor )
18.
<PAGE> 1
EXHIBIT 10.49
DIRECTORSHIP AGREEMENT
THIS DIRECTORSHIP AGREEMENT ("Agreement") is entered into as of December
15th, 1996 (the "Effective Date"), by and between Dieter Hoehn ("Director") and
IRORI, a California Corporation ("IRORI")
Director and IRORI agree as follows:
1. Description of Services. IRORI hereby retains Director and Director
hereby agrees to serve as a member of IRORI's Board of Directors and to
perform the advisory services and other duties associated with such a
position.
2. Compensation.
A. Director's Fee. IRORI shall pay Director one thousand five
hundred dollars ($1500.00) per each full business day that
Director performs his duties as a director, payable within
thirty (30) days. IRORI shall calculate in good faith the number
of days worked by Director.
B. Option Grant. IRORI shall issue to Director a non-statutory
stock option to purchase ten thousand (10,000) shares of Common
Stock pursuant to its 1995 Stock Option/Stock Issuance Plan upon
the execution of this Agreement and the form of Option Agreement
attached hereto as Exhibit A.
C. Expenses. IRORI shall reimburse Director for reasonable
expenses actually incurred which are incidental to the services
performed hereunder and which are consistent with IRORI's
standard policy for reimbursement.
D. Invoices. Director shall provide IRORI with monthly invoices
detailing the expenses and reimbursements which Director
believes are due under this Agreement Invoices should specify
the period for which compensation is claimed. Travel costs and
other expenses claimed must be itemized. IRORI agrees to pay
approved invoices within thirty (30) days of receipt.
3. Independent Contractor. Director's relationship with IRORI shall be
that of an independent contractor and nothing in this Agreement shall be
construed to create an employer-employee relationship between IRORI and
Director. IRORI agrees that during the time Director serves on IRORI's
Board of Directors, Director may be employed by other persons, firms or
corporations engaged in the same or similar business as that of IRORI,
provided, however, that the provisions of this Agreement shall be
strictly observed by Director with respect to such other persons, firms,
or corporations. Since Director will not be an employee of IRORI, it is
understood that Director will not be entitled to any of the benefits
under IRORI's retirement or group insurance plans or any other employee
benefits. Director is solely responsible for all taxes, withholdings,
and other similar statutory obligations, including, but not limited to,
Workers Compensation Insurance, Social Security, federal, state, or any
other employee payroll taxes; and
<PAGE> 2
Director agrees to defend, indemnify and hold IRORI harmless from any
and all claims made by any entity on account of an alleged failure by
Director to satisfy any such tax or withholding obligations. In the
performance of all services hereunder, Director shall comply with all
applicable laws and regulations.
4. No Conflict with existing Agreements. IRORI hereby states that IRORI
does not desire to acquire from Director any secret or confidential
know-how or information which Director may have acquired from others.
Accordingly, Director represents and warrants that Director is free to
divulge to IRORI, without any obligation to, or violation of any .right
of others, any and all information, practice or techniques which
Director will describe, demonstrate, divulge or in any other manner make
known to IRORI during Director's performance of services hereunder.
Director shall exonerate, indemnify and hold harmless IRORI from and
against any and all liability, loss, cost, expense, damage, claims or
demands for actual or alleged violation of the rights of others in any
trade secret know-how or other confidential information by reason of
IRORI's receipt or use of the services or information described above,
or otherwise in connection therewith.
5. Non-Disclosure and Non-Use. The parties hereto acknowledge that
during the course of Director's services to IRORI pursuant to this
Agreement it may become necessary or desirable for IRORI to disclose to
Director a substantial amount of IRORI Proprietary Information.
"Proprietary Information" is information that was or will be developed,
created, or discovered by or on behalf of IRORI, or which becomes or
will become known by, or was or is conveyed to IRORI which has
commercial value in IRORI's business. "Proprietary Information"
includes, but is not limited to, information operations and maintenance,
trade secrets, cell-lines, design, technology, ideas, know-how,
processes, formulas, compositions, data, techniques, improvements,
inventions (whether patentable or not), works of authorship, business
and product development plans, customers and other information
concerning IRORI's actual or anticipated business, research or
development or which is received in confidence by or for IRORI from any
other person. "Proprietary Information" does not include information
that Director demonstrates to IRORI's satisfaction, by written evidence,
is in the public domain by reason of prior publication not directly or
indirectly resulting from any act or omission of Director. Director
fully understands that the maintenance of such Proprietary Information
in strict confidence and the confinement of its use to IRORI is of vital
importance to IRORI. Director agrees that the Proprietary Information
divulged to Director by IRORI or which Director acquires in connection
with or as a result of Director's services hereunder shall be regarded
by Director as confidential. Director shall not use, nor shall Director
disclose, any Proprietary Information to any person either during or
after the period of this Agreement, except to those employees of
Director or IRORI as may be necessary in the regular course of
Director's duties hereunder, or except as otherwise authorized in
writing by the President of IRORI.
6. IRORI Materials. Director recognizes that all IRORI Materials made or
received by Director during the period of this Agreement are and shall
be the exclusive property of IRORI, and Director shall keep the same at
all times in Director's custody and subject to Director's control, and
shall surrender the same to IRORI immediately upon request of IRORI.
"IRORI Materials" are documents or other media or tangible items that
contain
2
<PAGE> 3
or embody Proprietary Information or any other information concerning
the business, operations, or plans of IRORI, whether such documents have
been prepared by Director or by others. "IRORI Materials" include, but
are not limited to, blueprints, drawings, photographs, charts, graphs,
notebooks, customer lists, computer disks, tapes or printouts, sound
recordings and other printed, typewritten, or handwritten documents, as
well as samples, prototypes, models, products and the like.
7. Indemnification. Director shall exonerate, indemnify and hold
harmless IRORI, its officers, agents and employees from and against any
and all liability, loss, cost, damage, claims, demands or expenses of
every kind on account of injuries (including death) to Director or loss
of or damage to Director's property arising out of or resulting in any
manner from or occurring in connection with Director's breach of his
obligations hereunder unless caused by the sole negligence of IRORI or
its servants or employees.
8. Termination. Director agrees that this Agreement may be terminated by
either IRORI or Director at any time for any reason, with or without
cause, by giving written notice to the other party; termination to be
effective upon the other party's receipt of notice. This Agreement shall
terminate automatically in the event of Director's inability for any
reason to perform Director's services or if Director is not elected for
subsequent terms by the shareholders of IRORI. Upon termination of this
Agreement, IRORI's obligation to pay any compensation, except for
services or expenses already accrued or incurred, shall forthwith cease
and terminate. Termination of this Agreement for any reason shall not
affect Director's obligations under paragraphs 4, 5, 6 and 7.
9. Remedies. Director acknowledges and agrees that a breach of this
Agreement will result in immediate, irreparable and continuing damage to
IRORI for which there will be no adequate remedy at law; and agrees that
in the event of any such breach or violation or any threatened or
intended breach or violation of this Agreement IRORI and its successors
and assigns shall be entitled to temporary, preliminary and permanent
injunctive relief and/or regaining orders enjoining and restraining such
breach or violation or such threatened or intended breach or violation
and/or other equitable relief (without needing to post any bond or other
security) in addition to such other and further relief as may be proper.
10. Amendments and Waivers. This Agreement may be modified, amended or
supplemented only by a written instrument daily executed by Director and
the President of IRORI. No term or condition or the breach thereof shall
be deemed waived, unless it is waived in writing and signed by the party
against whom the waiver is claimed. Any waiver or breach of any term or
condition shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term or condition. The
failure of any party to insist upon strict performance of any term or
condition hereunder shall not constitute a waiver of such party's right
to demand strict compliance therewith in the future.
11. Notices. All payments, notices, requests, demands and other
communications required or permitted hereunder shall be in writing and
shall be delivered personally (which shall include delivery by courier
or overnight delivery service) or sent by first
3
<PAGE> 4
class mail, postage prepaid, or sent by telecopier or other similar
facsimile transmission to the parties at their respective address set
forth below or at such other address as shall be given in writing by a
party to the other parties. Items delivered personally or by telecopier
or facsimile shall be deemed delivered on the date of actual delivery;
items sent by first class mail shall be deemed delivered three (3) days
after mailing.
If to IRORI: IRORI
11025 North Torrey Pines Rd. Ste. 100
La Jolla, CA 92037
If to
Director: Dieter Hoehn
7312 Barclery Court
University Park, FL 34201
(address)
12. Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, without regard to principles of conflicts of law. The
parties agree that any dispute regarding the interpretation or validity
of this Agreement shall be subject to the exclusive jurisdiction of the
state and federal courts in and for the county of San Diego, California
and each party hereby agrees to submit to the personal and exclusive
jurisdiction and venue of such courts.
13. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and
disbursements, in addition to any other relief to which such party may
be en-titled.
14. Counterparts. This Agreement may be executed in multiple copies,
each of which shall be deemed an original and all of which shall
constitute a single agreement binding on all parties.
15. Entire Agreement. This Agreement (together with documents and
agreements entered into herewith) constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings.
Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements have been made by any party, or any
one acting on behalf of any party, that are not embodied in this
Agreement with respect to the subject matter hereof.
16. Representation. By executing this Agreement Director acknowledges
that he understands and agrees that Brobeck, Phleger & Harrison LLP
represents the interests of IRORI solely and that he has had the
opportunity to consult with his own attorney in connection with this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Director IRORI, a California corporation
By: /s/ Michael Nova
---------------------------------
/s/ Dieter Hoehn
- -----------------------------
Dieter Hoehn Title: Michael Nova
------------------------------
CEO
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EXHIBIT 10.51
IRORI
KEY EMPLOYEE AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the
17th day of April, 1998 by and between Riccardo Pigliucci ("Executive") and
IRORI, a California corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein; it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company agrees to employ
Executive in the position of President and Chief Executive Officer ("CEO") of
the Company and Executive hereby accepts such employment effective as of April
17, 1998. During the term of his employment with the Company, Executive will
devote his best efforts and substantially all of his business time and attention
(except for vacation periods as set forth herein and reasonable periods of
illness or other incapacities permitted by the Company's general employment
policies) to the business of the Company. Executive will use his best efforts to
relocate to a temporary residence in the San Diego, California area (pending
relocation of his permanent residence to the San Diego, California area) on a
full-time basis by no later than August 31, 1998, and shall spend approximately
1 day per week on site at the Company prior to the completion of this
relocation.
1.2 Executive shall serve in an executive capacity and shall perform
such duties as are customarily associated with his then current title,
consistent with the Bylaws of the Company and as required by the Company's Board
of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control. In addition, as an executive officer of
the Company, Executive will be covered by the Company's directors and officers
liability insurance coverage, as in effect from time to time, as well as the
Company's bylaw indemnification and indemnity agreement for executive officers
and directors.
<PAGE> 2
2. BOARD OF DIRECTORS.
The Company shall use its best efforts to elect Executive to the
Board for so long as Executive holds the position of President and Chief
Executive Officer of the Company. Executive agrees to serve as a director if
elected by the shareholders and the Board, as the case may be. Upon Executive's
request (no earlier than six (6) months following the Effective Date), the Board
will consider electing Executive as Chairman.
3. COMPENSATION.
3.1 Salary. Executive shall receive for services to be rendered
hereunder an annualized base salary of $350,000 payable according to the
Company's regular payroll schedule.
3.2 Bonus Plan; Bonus. No later than March 1 of each calendar year
during the term hereof, commencing with calendar year 1998 (with the exception
that the Bonus Plan, as hereinafter defined, for 1998 is to be completed and
approved by the June 1, 1998), Executive will be responsible for creating and
presenting to the Board of Directors of the Company (the "Board"), a
performance-based bonus plan (a "Bonus Plan") for such calendar year for such
employees of the Company, including Executive, as Executive believes to be
appropriate and in the best interests of the Company's business. The Board and
Executive will in good faith attempt to agree upon the Bonus Plan for 1998 no
later than June 1, 1998. If Executive has timely submitted such Bonus Plan in
the relevant calendar year, and if by April 15 of the relevant calendar year (by
June 1, 1998 for the Bonus Plan for 1998), the Board has not approved such Bonus
Plan as submitted by Executive and as discussed by the Board and Executive after
or before such submission, then the Board will approve and deliver to Executive
no later than May 15 of such year (no later than June 15 for 1998) a
performance-based Bonus Plan created by the Board, which will be the Bonus Plan
against which Executive's performance for such year will be measured as to any
bonus to which he may become entitled, provided that such Board-created Bonus
Plan will in each case be created in good faith with the goal of maintaining and
increasing shareholder value in the Company. If Executive remains an active
employee throughout the applicable calendar year and Executive and/or the
Company, as applicable, meet the performance goals set forth in the Bonus Plan
then in effect, Executive will be entitled to receive a bonus equal to at least
50% of base salary under such Bonus Plan, prorated for partial performance, if
and to the extent set forth in such Bonus Plan, in each case, as such Bonus Plan
is approved by the Board.
3.3 Standard Company Benefits. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions of
the standard Company benefits and compensation practices which may be in effect
from time to time and provided by the Company to its employees generally.
3.4 Relocation Expenses. The Company will advance, or reimburse,
upon submission of invoices and reasonably detailed supporting documentation an
amount not to exceed $175,000 (not including the amount of the "gross up" set
forth in Section 3.4(e) below) in the aggregate in respect of:
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(a) Executive's reasonable moving expenses, including packing
and unpacking and any necessary in-transit or other temporary storage, in
relocating Executive's household goods from the Weston, Connecticut area to the
San Diego, California area;
(b) Executive's reasonable temporary housing expenses, for the
period from the Effective Date through the earlier of December 31, 1998 or the
date upon which Executive's household has been relocated to the San Diego,
California area;
(c) One round-trip coach airfare ticket per week for Executive
between the Connecticut/New York area and San Diego, California during the
period commencing on the Effective Date and ending upon the earlier of the date
of final relocation of Executive's household to the San Diego, California area
or August 31, 1998, and for (ii) round-trip coach airfare between the
Connecticut/New York area and San Diego, California for Executive's spouse for
up to three (3) trips in connection with the relocation of Executive's household
to the San Diego, California area; and
(d) All commercially reasonable closing costs (including
without limitation reasonable and customary real estate commissions to the
extent applicable) in connection with both any sale by Executive of his house in
Connecticut and any purchase by Executive of a house in the San Diego,
California area which occur, in each case, within one (1) year after the
Effective Date.
(e) The reimbursements set forth in this Section 3.4 shall, to
the extent appropriate, be "grossed up". For purposes of this Section 3.4 and
Section 3.5 below, "grossed up" means that in the case of a reimbursed expense
or payment that is taxable to Executive and is not deductible for Federal income
tax purposes, Executive will be paid an amount which, after taxes on such
amount, will equal the amount of the non-deductible reimbursable expenses or
payments.
3.5 Mortgage Differential Assistance. Executive will be paid an
amount equal to the difference in interest incurred on the principal amount of
the mortgage unpaid on his current residence in Weston, Connecticut area as of
the Effective Date ("Old Mortgage") and the interest incurred on any mortgage
taken out by him in connection with his new residence in the San Diego,
California area ("New Mortgage"), limited to the excess interest payable on an
amount of up to $1,000,000 more of principal amount of mortgage (the "Excess
Mortgage Amount"). The interest differential on the Excess Mortgage Amount shall
be paid for a period ending on the earlier of (i) three (3) years from the
commencement date of the New Mortgage or (ii) the date upon which the Company
first sells securities pursuant to a registration statement filed by the Company
under the Securities Act of 1933, as amended, in connection with a firm
commitment underwritten offering of the Company's securities. The interest
differential on the Excess Mortgage Amount shall be determined without regard to
the effects of any adjustment in the interest rate that takes place following
the date the New Mortgage is funded and by calculating the interest that would
have been due on the Excess Mortgage Amount assuming the New Mortgage is
amortized over thirty (30) years. The payments to be made to Executive with
respect to the interest differential on the Excess Mortgage Amount shall be
"grossed up".
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3.6 Compensation Review. The Board will annually review Executive's
salary, performance bonus, and incentive stock options to ensure that they are
commensurate with work performed. In addition, the Company will annually review
and mutually establish with Executive the goals to be used in evaluating
Executive's performance bonus.
4. STOCK OWNERSHIP. Executive will be entitled to obtain stock
ownership in the Company as follows:
4.1 Initial Stock Purchase. Within fifteen (15) days after the
Effective Date, the Company will, by action of its Board, provide to Executive
the opportunity to purchase up to 600,000 shares of the Company's Common Stock
(the "Initial Shares"), pursuant to the standard Restricted Stock Purchase
Agreement (the "Restricted Stock Purchase Agreement") approved as part of the
Company's Equity Incentive Plan (the "Plan"), as follows:
(a) Such Initial Shares will be sold to Executive for the fair
market value per share of the Common Stock as determined in good faith by the
Board as of the date of sale.
(b) The Company will provide Executive an opportunity to
acquire the Initial Shares by issuing to the Company a Note in the amount of the
purchase price for the Initial Shares bearing interest at the minimum applicable
Federal interest rate, secured by the Initial Shares.
(c) The Company shall have the right to repurchase, at the
purchase price per share paid by Executive, shares from Executive upon his
termination as will be specified in the Restricted Stock Purchase Agreement,
which repurchase right will lapse with respect to one hundred and twenty
thousand (120,000) shares on the first anniversary of the Effective Date and ten
thousand (10,000) shares for each month thereafter, at the end of which
Executive still is employed by the Company, as specified in the Restricted Stock
Purchase Agreement.
4.2 Percentage Maintenance Right. During the term of his employment,
Executive will have the right to purchase further securities of the Company as
follows:
(a) For purposes of this Section 4.2, the following terms will
have the following meanings:
(i) "Equity Financing" means the issuance and sale by
the Company, at a closing which occurs after the Effective Date but during the
term of this Agreement, of the Company's Common Stock and/or Preferred Stock
and/or other securities, such as warrants or convertible debt securities,
convertible into its Common Stock or Preferred Stock ("Equity Securities"),
other than the following: (i) Common Stock (or options therefor) issued to
employees, consultants, directors or officers of the Company pursuant to plans
approved by the Board, (ii) Equity Securities issued in, or following the
consummation of, a bona fide, firmly underwritten public offering of shares of
Common Stock, registered under the Securities Act of 1933, as amended, pursuant
to a registration statement on Form S-1, (iii) Equity Securities issued pursuant
to the conversion or exercise of convertible or exercisable securities,
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(iv) Equity Securities issued in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise or (v) stock, warrants or other
securities or rights issued to persons or entities with which the Company has or
is establishing business relationships provided such issuances are for other
than primarily equity financing purposes and involve other strategic elements
which may include without limitation, a joint marketing agreement, a license
agreement, or a technology development agreement.
(ii) "Executive's Minimum Proportion" means a
proportion equal to the number of shares of Common Stock issued and held, or
issuable upon conversion or exercise of any convertible or exercisable security
then held by Executive divided by the total number of shares of Common Stock of
the Company then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).
(b) Executive's Maintenance Right. Executive may purchase, at
the closing of each Equity Financing, upon the same terms and conditions as are
applicable to the issuance to other investors at such Equity Financing of the
securities sold in such Equity Financing, an amount of such securities equal to
Executive's Minimum Proportion.
(c) Termination of Maintenance Right. The rights of Executive
set forth in Section 4.2(b) above shall terminate and be of no further force or
effect from and after the date of the sale of securities pursuant to a
registration statement filed by the Company under the Securities Act of 1933, as
amended, 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 Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
5. PROPRIETARY INFORMATION OBLIGATIONS.
5.1 Agreement. Executive agrees to execute and abide by the
Company's standard form of Proprietary Information and Inventions Agreement.
5.2 Remedies. Executive's duties under the Proprietary Information
and Inventions Agreement shall survive termination of his employment with the
Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
6. OUTSIDE ACTIVITIES.
6.1 Except with the prior written consent of the Company's Board of
Directors, Executive will not during the term of this Agreement undertake or
engage in any other employment, occupation or business enterprise, other than
ones in which Executive is a passive investor within the limitations set forth
in Section 6.3 below. Executive may engage in civic and not-for-profit
activities so long as such activities do not materially interfere with the
performance of his duties hereunder.
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6.2 Except as permitted by Section 6.3, Executive agrees not to
acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business or prospects, financial or otherwise.
6.3 During the term of his employment by the Company, except on
behalf of the Company, Executive will not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by him to compete directly with the Company throughout the world, in any
line of business engaged in (or planned to be engaged in) by the Company,
provided, however, that anything above to the contrary notwithstanding, he may
own, as a passive investor, securities of any competitor corporation, so long as
his direct holdings in any one such corporation shall not in the aggregate
constitute more than 5% of the voting stock of such corporation.
6.4 Executive may serve as a member of the board of directors of any
other unaffiliated company that is not in competition with the Company, provided
that such service does not interfere with the performance of his duties or
responsibilities. Executive's service as a member of the board of directors of
any other company shall be subject in each case to the approval of the Board,
following consultation with Executive, which approval will not be unreasonably
withheld. For purposes of this Section 1.4, Executive serving on the board of
directors of Dionex, BioSepre and TopoMetrix shall be deemed to have been
approved by the Board. Executive may retain all benefits he receives as a
director of any unaffiliated company, and the Company shall not reduce his
compensation by the amount of such benefits.
7. TERMINATION OF EMPLOYMENT.
7.1 Termination Without Cause or With Good Reason.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time without cause.
(b) In the event Executive's employment is terminated by the
Company without cause, or in the event a Constructive Termination Event, as
defined in Section 7.4 below, occurs and is not reversed within a fourteen-day
period specified in Section 7.4, and Executive, after the expiration of such
fourteen-day period, resigns in writing, delivered to the Company, stating that
his resignation is a result of, and specifying in reasonable detail the nature
of, such uncured Constructive Termination Event, the Company shall retain
executive as a consultant for up to three years as described in Section 8 below,
in consideration of Executive's execution of a unqualified unconditional release
of the Company from all liabilities and obligations (other than those provided
for in this Agreement) in form and substance acceptable to the Company.
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7.2 Termination for Cause.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time for cause.
(b) "Cause" for termination shall be determined by the Company
based on the Board's reasonable belief that one or more of the following has
occurred: (i) Executive's indictment or conviction of any felony or of any crime
involving dishonesty; (ii) Executive's participation in any fraud against the
Company; (iii) breach of Executive's duties to the Company, whether arising
under this Agreement or by operation of law, provided that the Company has given
advance written notice to Executive for at least 30 days and Executive has not
cured such breach to the satisfaction of the Board within said 30-day period;
(iv) Executive's intentional damage to any property of the Company; or (v)
conduct by Executive or lack of performance which in the good faith and
reasonable determination of the Board demonstrates unfitness to serve.
(c) In the event Executive's employment is terminated at any
time with cause, he will not be entitled to severance pay, pay in lieu of notice
or any other such compensation.
7.3 Voluntary or Mutual Termination.
(a) Executive may voluntarily terminate his employment with
the Company at any time upon 30 days prior written notice, after which no
further compensation will be paid to Executive. Notwithstanding the foregoing,
Executive's voluntary resignation following a Constructive Termination Event, in
accordance with Section 7.1(b), shall not be deemed to be a voluntary
termination for purposes of this Section 7.3.
(b) In the event Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice or
any other such compensation.
7.4 Constructive Termination Event. A "Constructive Termination
Event" will be deemed to have occurred at the Company's close of business on the
fourteenth (14th) day after, and including, the first day, that any of the
following actions is taken by the Company and such action is not reversed in
full by the Company within such fourteen-day period unless prior to the
expiration of such fourteen-day period Executive has otherwise agreed to the
specific relevant event in writing: (1) Executive's aggregate benefits
(excluding his salary compensation and already-set Bonus Plan amounts, which may
only be increased, decreased or otherwise changed by mutual written agreement of
the Company and Executive as an amendment hereto or to the relevant Bonus Plan)
are materially reduced below those in effect immediately prior to the effective
date of such Constructive Termination Event, and such reduction is not applied
as part of an overall reduction in benefits in which Executive is treated
proportionately given Executive's position, length of service, income and other
relevant factors customary within the biotechnology industry within the state in
which the Company's principal offices are located at the date of such reduction,
and/or (2) Executive's duties and/or authority are materially decreased from
those in effect immediately prior to such Constructive Termination Event, in a
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way that is adverse to Executive, and/or (3) Executive' title is changed to a
title that, under customary practice within the biotechnology industry within
the state in which the Company's principal offices are located at the date of
such reduction, would be considered to be a lower-level title than Executive's
prior title, and/or (4) Executive is required to perform his employment
obligations (other than routine travel consistent with that prior to the
effective date of such Constructive Termination) at a location more than
twenty-five (25) miles away from Executive's principal place of work for the
Company, as such place of work was in effect immediately prior to the effective
date of such Constructive Termination Event, and/or (5) this Agreement is not
assumed in full, absent the written agreement of Executive otherwise, by any
successor to the Company, including any acquiror of all or substantially all of
the assets of the Company if such acquiror does not assume this Agreement, to
whom this Agreement is not automatically assigned in full by operation of law.
8. POST-EMPLOYMENT CONSULTATION.
Upon the termination of Executive's employment with the Company
pursuant to Section 7.1(b), the Company shall automatically retain Executive as
a consultant to be available to render consulting services in Executive's area
of expertise or special competence on a non-exclusive basis for three years if
Executive's employment is terminated prior to the one year anniversary date of
Executive's employment commencement date, two years if such employment is
terminated after such one year anniversary date and prior to such second
anniversary date, and one year if such employment is terminated after such two
year anniversary date ("Consulting Period"), for up to fifteen (15) hours each
month. The Company shall pay Executive a monthly consulting fee equal to
one-twelfth (1/12th) of his base salary as in effect at the time of termination,
whether or not Executive shall be called upon to render any services in any such
month. Any out-of-pocket expenses which Executive's consulting activities for
the Company may require will be reimbursed against receipts and vouchers
therefor in accordance with the Company's policies in force from time to time.
Executive may terminate the consulting arrangement contemplated by this Section
8, at anytime, but shall not be entitled to receive any consulting fees for the
period following the termination of such consulting arrangement.
9. POST-EMPLOYMENT ACTIVITIES.
If the Company retains Executive as a consultant pursuant to Section
8 above, then the following restrictions shall apply so long as the Company
retains Executive as a consultant:
9.1 Absent the Company's prior written approval upon instructions of
its Board of Directors, Executive will not directly or indirectly engage in
activities (similar or reasonably related to those in which Executive shall have
engaged hereunder during the two years immediately preceding the termination of
Executive's employment with the Company) nor render services (similar or
reasonably related to those which Executive shall have rendered hereunder during
such two years) in either case to any firm or business organization which
directly competes with the Company in any line of business engaged in (or
planned to be engaged in) by the Company, whether now existing or hereafter
established, nor shall Executive engage in such activities nor render such
services to any other person or entity engaged or about
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to become engaged in such activities to, for or on behalf of any such firm or
business organization, nor shall Executive entice, induce or encourage any of
the company's other employees to engage in any activity which, were it done by
Executive, would violate any provision of the Proprietary Information Agreement
or this Section 9.
9.2 The Company upon instruction of its Board of Directors may give
Executive written approval(s) to engage personally in any activity or render
services referred to in Section 9.1 if it secures written assurances
(satisfactory to the Company and its counsel) from Executive and from the
prospective employer(s) that the integrity of the Proprietary Information
Agreement will not in any way be jeopardized by such activities, provided the
burden of so establishing the foregoing to the satisfaction of the Company and
said counsel shall be upon Executive and his prospective employer(s).
9.3 The provisions of Section 6.3 shall be applicable to Executive
and Executive shall comply therewith. As applied to such consulting period, the
term "any line of business engaged in (or planned to be engaged in) by the
Company," as used in Section 6.3, shall be applied as at the date of termination
of Executive's employment.
10. NONSOLICITATION.
For two (2) years immediately following the termination of
employment hereunder, Executive agrees not to interfere with the business of the
Company by soliciting, inducing, or otherwise causing any employee or consultant
of the Company to terminate his or her employment or engagement with the
Company. Notwithstanding the foregoing, if requested by an employee of the
Company, Executive shall be entitled to serve as a reference for such employee.
11. SPECIAL TERMINATION.
Notwithstanding anything else set forth herein, Executive shall be
entitled to terminate this Agreement upon providing prompt written notice to the
Company at least 5 days in advance, if within forty-five (45) days following the
Effective Date (i) the Company has not entered into binding operative documents
in the establishment or continuance of a corporate partnering relationship or
strategic partnership as such terms are customarily understood in the
pharmaceuticals industry, pursuant to which the Company is entitled to receive
at least $8,000,000 following the Effective Date, through the sale of equity
securities, research and development payments, or otherwise and (ii) the Board
has not approved a business plan mutually developed with the Company and
proposed to the Board by Executive. In the event of a termination pursuant to
this Section 11, this entire Agreement shall be of no further force and effect
and Executive's sole right under this Agreement shall be to receive the
compensation set forth in Section 3.1 hereof solely for the period during which
Executive was employed by the Company.
12. GENERAL PROVISIONS.
12.1 Notices. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by fax) or the
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third day after mailing by first class mail, to the Company at its primary
office location and to Executive at his address as listed on the Company
payroll.
12.2 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
12.3 Waiver. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
12.4 Complete Agreement. This Agreement and its Exhibits, constitute
the entire agreement between Executive and the Company and it is the complete,
final and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein, and it cannot be modified or
amended except in a writing approved by the Board.
12.5 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
12.6 Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
12.7 Arbitration. Any controversy, claim or dispute between
Executive and the Company and/or the Company's parents, subsidiaries or
affiliates and/or any of their directors, officers, employees, agents,
successors, assigns, heirs, executors, administrators, or legal representatives
arising out of, in connection with, or in relation to (t) the interpretation,
validity, performance or breach of this Agreement, (u) Executive's stock options
and the underlying shares, (v) Executive's employment by the Company, (w) any
termination of such employment, (x) any actions during or with respect to
Executive's work for the Company, (y) any claims for breach of contract, tort,
or breach of the covenant of good faith and fair dealing, or (z) any claims of
discrimination or other claims under any federal, state or local law or
regulation now in existence or hereinafter enacted and as amended from time to
time concerning in any way the subject of Executive's employment with the
Company or its termination, shall, at the request of either party, be resolved
to the exclusion of a court of law by binding arbitration in San Diego,
California, in accordance with Exhibit A hereto. Each of Executive and the
Company understands and agrees that the arbitration shall be instead of any
civil litigation and that the arbitrator's decision shall be final and binding
to the fullest extent permitted by law and enforceable by any court having
jurisdiction thereof. The only claims not covered by this Section 12.7 are
claims for benefits under the workers' compensation laws, claims for
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unemployment insurance benefits, and matters within the jurisdiction of the
California Labor Commissioner, which will be resolved pursuant to those laws.
12.8 Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
12.9 Choice of Law. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California without regard to conflict of laws principles.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
IRORI
By: /s/ Andrew Senyei
-----------------------------------
Andrew E. Senyei, M.D.
Chairman of the Board
Date: April 17, 1998
Accepted and agreed this 17th day of April, 1998.
/s/ Riccardo Pigliucci
- -----------------------------------
Riccardo Pigliucci
[SIGNATURE PAGE TO KEY EMPLOYEE AGREEMENT]
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EXHIBIT A
ARBITRATION PROCEDURES
1. Agreement to Arbitrate
In the event that there is any dispute relating to, regarding or arising
in connection with Executive's employment with the Company which cannot be
resolved through direct discussion or mediation, regardless of the kind or type
of dispute (excluding claims for workers' compensation, unemployment insurance
or any matters within the jurisdiction of the California Labor Commissioner),
all such disputes shall be submitted exclusively to final and binding
arbitration pursuant to the provisions of the Federal Arbitration Act or, if
inapplicable, the Uniform Arbitration Act (California Code of Civil Procedure
Section 1280 et seq.), upon request submitted in writing to the President within
one year from the date the dispute first arose, or within one year of the date
of termination of employment, whichever occurs first. This procedure shall be
the exclusive method for resolving all claims relating to the termination of
Executive's employment, including but not limited to any alleged violations of
federal, state and/or local statutes; all claims based upon any purported breach
of duty arising in contract or tort, including but not limited to breach of
contract, breach of the covenant of good faith and fair dealing, or violation of
public policy; and any other alleged violation of an employee's statutory,
contractual or common law rights.
Any failure to request arbitration in accordance with the foregoing
provisions shall constitute a waiver of all rights to raise or present any
claims in any form, in any forum, arising out of any dispute that was subject to
arbitration.
2. Selection of Arbitrator
All disputes subject to arbitration will be resolved by a single
arbitrator selected from a list provided by the California Mediation and
Conciliation Service from its Employment Arbitration Panel. The parties shall
select the arbitrator by alternately striking names from the list, and the last
name remaining on the list shall be the arbitrator selected to resolve the
dispute. The arbitrator must be selected within thirty (30) days of receipt of
the written request for arbitration. The arbitration hearing shall be held in
San Diego, California, at a neutral location selected by the parties or, in the
event the parties are unable to agree, at a location designated by the
arbitrator.
3. Authority of Arbitrator
The arbitrator shall only be authorized to exercise the powers
specifically enumerated by this procedure and to decide the dispute in
accordance with governing principles of law and equity. The arbitrator shall
have no authority to modify the powers granted by the terms of this procedure or
to modify the terms of the employee handbook, except as required by law. The
arbitrator shall have the authority to rule on motions by the parties, to issue
protective orders upon motion of any party or third party, and to determine only
the disputes submitted by the
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parties based upon the grounds presented. Any dispute or argument not presented
by the parties is outside the scope of the arbitrator's jurisdiction and any
award invoking such disputes or arguments is subject to a motion to vacate;
provided, however, the arbitrator shall have exclusive authority to resolve any
dispute relating to the validity, interpretation and enforcement of these
arbitration procedures.
4. Discovery
The arbitrator shall have the power, in addition to determining the merits
of the dispute submitted, to permit discovery regarding the subject matter of
arbitration and to enforce the rights, remedies, procedures, duties, liabilities
and obligations of discovery by the imposition of the same terms, conditions,
consequences, liabilities, sanctions and penalties as may be imposed in like
circumstances by a Superior Court under the California Code of Civil Procedure.
All discovery must be completed thirty (30) days prior to the date set for the
arbitration hearing.
5. Hearing Procedure
The issue(s) submitted to the arbitrator must be set forth in the request
for arbitration. The arbitrator shall have no authority to frame the statement
of the issue(s). Unless otherwise agreed by the parties, the arbitration hearing
shall be governed by the formal rules of evidence contained in the California
Evidence Code. The parties shall mutually agree on the number of days required
for hearing. The hearing shall be recorded and transcribed verbatim by a
certified shorthand reporter. Each party shall bear its own costs with respect
to a copy of the transcript of the hearing; however, the parties shall each be
responsible for one-half the cost of the court reporter's fee and the
arbitrator's copy of the hearing transcript.
6. Post-Hearing Procedure
Each party shall have the right to present closing argument at the
conclusion of all sworn testimony and, in addition to or in lieu of closing
argument, either party shall have the right to submit post-hearing briefs. The
due date and procedure for exchanging post-hearing briefs shall be mutually
agreed upon by the parties or as directed by the arbitrator.
7. Opinion and Award
The arbitrator shall issue a written opinion and award within sixty (60)
days of closing arguments or the receipt of post-hearing briefs, whichever is
later. The arbitration award and opinion shall be signed and dated by the
arbitrator and shall decide all issues submitted and set forth the legal
principles supporting each aspect of the opinion and award. The arbitrator shall
only be permitted to award those remedies in law or equity which are requested
by the parties and which are supported by the credible, relevant evidence. The
arbitrator shall have no authority to award punitive or exemplary damages under
any circumstances or for any reason.
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8. Fees and Costs
Each party shall be responsible for its own attorney's fees, except as
provided by law, and for all costs associated with discovery unless otherwise
ordered by the arbitrator. Each party shall also be responsible for one-half of
the arbitrator's fee and one-half of any costs associated with the facilities
for the arbitration hearing.
9. Severability
In the event that any provision of this procedure is determined by the
arbitrator or by a court of competent jurisdiction to be illegal, invalid, or
unenforceable to any extent, such term or provision shall be enforced to the
extent permissible under law and all remaining terms and provisions hereof shall
continue in full force and effect.
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EXHIBIT 10.52
DISCOVERY PARTNERS INTERNATIONAL, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
AS AMENDED AND RESTATED EFFECTIVE
OCTOBER 29, 1998
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
This 1995 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of DISCOVERY PARTNERS INTERNATIONAL, INC. (the
"Corporation"), by providing individuals who render valuable services to the
Corporation (or any Parent or Subsidiary) with the opportunity to acquire
ownership interests in the Corporation so as to encourage them to continue to
render services to the Corporation (or any Parent or Subsidiary).
2. STRUCTURE OF THE PLAN; TERMINOLOGY
This Plan has two separate components: the Option Grant Program set
forth in Article II and the Stock Issuance Program set forth in Article III. For
the purposes of this Plan, any capitalized term shall have the meaning assigned
under Article IV, Section 8 hereof.
3. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered either by the board of directors
of the Corporation (the "Board") or a committee of two (2) or more persons
appointed by the Board to which the Board has delegated administrative functions
under the Plan (the "Plan Administrator"). Members of any committee to which the
Board has delegated any administrative functions shall serve for such terms as
the Board shall determine and subject to the Board's right of removal. All
delegations of authority to any committee shall be and remain revocable by the
Board.
B. The Plan Administrator shall have full power and authority to
implement, interpret and administer the Plan, to establish all such rules and
regulations as it deems appropriate, and to make such determinations under the
Plan and any outstanding option grants or share issuances as it deems necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option or share
issuance.
4. SELECTION OF OPTIONEES AND PARTICIPANTS
A. The persons eligible to receive share issuances under the Stock
Issuance Program and/or option grants pursuant to the Option Grant Program are
limited to Employees; non-employee members of the Board (or the Board of any
Parent or Subsidiary); and consultants
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and other independent contractors who provide valuable services to the
Corporation (or to any Parent or Subsidiary).
B. The Plan Administrator shall have the absolute discretion and
authority to determine, subject to the provisions of this Plan, the terms of any
option grant or share issuance. In addition to any other matters over which the
Plan Administrator has discretion hereunder, the Plan Administrator shall
determine which, if any, eligible individuals will be granted options in
accordance with Article II of the Plan and which will be issued shares in
accordance with Article III of the Plan. With respect to option grants made
under the Plan, the Plan Administrator will determine the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable, the exercise price payable under the
option, the vesting schedule (if any) applicable to shares issued pursuant to
the granted options, and the maximum term for which the option may remain
outstanding. With respect to share issuances under the Stock Issuance Program,
in addition to other matters over which the Plan Administrator has discretion
hereunder, the Plan Administrator will determine the number of shares to be
issued to each issuee, the vesting schedule (if any) applicable to the issued
shares, and the consideration to be paid by the individual for such shares.
C. Stock issuable under the Plan, whether under the Option Grant
Program or the Stock Issuance Program, may be subject to such restrictions on
transfer, repurchase rights or other restrictions as may be imposed by the Plan
Administrator and set forth in the documents governing such option or issuance.
5. STOCK SUBJECT TO THE PLAN
A. Common stock of the Corporation ("Common Stock") will be issued
under the Plan. The maximum number of shares of Common Stock which may be issued
over the term of the Plan shall not exceed 1,950,000 shares, subject to
adjustment from time to time in accordance with the provisions of this Section 5
of Article I.
B. Shares reserved for issuance under granted options but not in
fact issued pursuant to options granted under the Plan due to the expiration or
termination of the option or the cancellation of the option in accordance with
Section 3 of Article II, will remain available for issuance under the Plan.
Shares actually issued under the Plan, whether pursuant to the exercise of an
option under the Option Grant Program or a stock issuance pursuant to the Stock
Issuance Program, which are subsequently repurchased by the Corporation will not
be available for future issuance.
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan and (ii) the aggregate number and/or class of shares and the option
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive.
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6. AMENDMENT OF THE PLAN AND AWARDS
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall adversely affect the express rights or
obligations of an optionee with respect to options at the time outstanding under
the Plan, nor adversely affect the express rights of any issuee with respect to
Common Stock issued under the Plan prior to such action unless such optionee or
issuee consents to such amendment. In addition, the Board shall not, without the
approval of the Corporation's shareholders, amend the Plan so as to (i) increase
the maximum number of shares issuable under the Plan (except for adjustments
required under Article I, Section 5.C), (ii) materially increase the benefits
accruing under the Plan for individual optionees or issuees, or (iii) materially
modify the eligibility requirements for participation in the Plan.
B. Options to purchase shares of Common Stock may be granted under
the Option Grant Program and shares of Common Stock may be issued under the
Stock Issuance Program, which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Option Grant Program or the Stock Issuance Program are held in
escrow until shareholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
date the initial excess options are granted or issuances are made, then (I) any
unexercised options representing such excess shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any excess shares issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow, and (III) any such
shares shall thereupon be automatically cancelled and cease to be outstanding
7. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board.
Options to purchase shares of Common Stock may be granted under the Option Grant
Program and shares of Common Stock may be issued under the Stock Issuance
Program from and after the effective date, provided any shares actually issued
under the Plan are held in escrow until shareholder approval of the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
effective date, then (I) all options shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any shares issued under the Plan,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, (III) any such shares issued under the
Plan shall thereupon be automatically cancelled and cease to be outstanding, and
(IV) this Plan shall terminate in its entirety.
B. Unless sooner terminated by reason of Section 7A of this Article
I, the Plan shall terminate upon the earlier of (i) December 31, 2005, or (ii)
the date on which all shares available for issuance under the Plan have been
issued pursuant to the exercise of options granted under Article II or the
issuance of shares under Article III. The termination of the Plan shall have no
effect on any shares issued and outstanding under the Plan, and such securities
shall
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thereafter continue to have force and effect in accordance with the provisions
of the agreements evidencing such issuances.
8. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon any person any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary) or of the optionee or the issuee, which rights are hereby expressly
reserved by each, to terminate Service of the optionee or issuee at any time for
any reason whatsoever, with or without cause or to engage in any
recapitalization, reorganization or other corporate transaction whatsoever.
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action
of the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options, except that individuals who
are not Employees may only be granted Non-Statutory Options. Each granted option
shall be evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
the terms and conditions of Section 1 of this Article II and each instrument
evidencing an Incentive Option shall, in addition, comply with the provisions of
Section 2 of this Article II.
A. OPTION PRICE.
(I) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock on the date of the option grant.
(II) The option price per share shall become immediately due
upon exercise of the option and shall, subject to the provisions of Article IV,
Section 1 and the agreement evidencing such grant, be payable in cash or check
drawn to the Corporation's order. Notwithstanding the above, should the
Corporation's outstanding Common Stock be registered under Section 12(g) of the
1934 Act, at the time the option is exercised, then the option price may also be
paid as follows:
- in shares of Common Stock held by the optionee for
the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued
at Fair Market Value; or
- through a special sale and remittance procedure
pursuant to which the optionee provides irrevocable written
instructions (I) to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, an amount sufficient to cover the aggregate option price
payable for the purchased shares plus all applicable Federal and
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State income and employment taxes required to be withheld by the
Corporation by reason of such purchase and (II) to the Corporation
to deliver the certificates for the purchased shares directly to
such brokerage firm in order to effect the sale transaction.
Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan
shall be exercisable at such time or times, during such period, and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the stock option agreement evidencing such option. However, no option granted
under the Plan shall have a term in excess of ten (10) years from the grant
date.
C. NO ASSIGNMENT. During the lifetime of the optionee, the option
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution following, the optionee's death.
D. TERMINATION OF SERVICE. The following provisions shall govern
the exercise period applicable to any options held by the optionee at the time
of cessation of Service or death:
(I) Should the optionee cease to remain in Service for any
reason other than death or Permanent Disability, then the period during which
each outstanding option held by such optionee is to remain exercisable shall be
limited to the three (3)-month period following the date of such cessation of
Service.
(II) Should such Service terminate by reason of Permanent
Disability or should the optionee die while holding one or more outstanding
options, then the period during which each such option is to remain exercisable
shall be limited to the twelve (12)-month period following the date of the
optionee's cessation of Service or death. During the limited exercise period
following the optionee's death, the option may be exercised by the personal
representative of the optionee's estate or by the person or persons to whom the
option is transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution.
(III) The Plan Administrator shall have full power and
authority to extend (either at the time the option is granted or at any time
while the option remains outstanding) the period of time for which the option is
to remain exercisable following the optionee's cessation of Service, from the
limited period otherwise applicable under this subsection 1D of Article II, to
such greater period of time as the Plan Administer may deem appropriate under
the circumstances.
(IV) Notwithstanding the above no option shall be
exercisable after the specified expiration date of the option term.
(V) Each option shall, during the applicable limited
exercise period, be exercisable only with respect to the shares for which the
option was exercisable on the date of the optionee's cessation of Service.
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E. CORPORATE TRANSACTIONS. Except to the extent otherwise provided in
the option agreement, each option, to the extent not previously exercised, will
terminate and cease to be exercisable upon the consummation of one or more of
the following shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by
the Corporation for cash) in or by means of which one or more persons
acting in concert acquire, in the aggregate, more than 50% of the
outstanding shares of the stock of the Corporation.
F. LEAVE OF ABSENCE. An optionee shall not be considered to have
terminated his or her Service to the Corporation by reason of any leave of
absence approved by the Corporation or to which the optionee may be entitled
under law. Notwithstanding the above, no rights of an optionee under any option
which are dependent upon the continued performance of Service shall accrue or
vest optionee during any such leave of absence unless otherwise provided by the
Plan Administrator in the agreement evidencing the option or in the exercise of
its discretion hereunder. The Plan Administrator shall make such adjustments to
the vesting schedule otherwise applicable with respect to the optionee as it
deems appropriate to reflect the suspension of such accrual or vesting during
any such leave of absence.
G. SHAREHOLDER RIGHTS. An optionee shall not have rights as a
shareholder with respect to any shares subject to an option until such optionee
shall have exercised the option and paid the option price.
2. INCENTIVE OPTIONS
All provisions of the Plan shall be applicable to Incentive Options
granted hereunder and, in addition, the terms and conditions specified in this
Section 2 shall be applicable to Incentive Options granted under the Plan.
Options which are specifically designated as Non-Statutory Options when issued
under the Plan shall not be subject to such terms and conditions set forth
herein.
A. OPTION PRICE.
(I) The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of a share of Common Stock on the grant date.
(II) If the individual to whom the option is granted is a
10% Shareholder, then the option price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the Common Stock on the
date of the option grant.
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B. DOLLAR LIMITATION. The aggregate Fair Market Value (determined
as of the date or dates of grant) of Common Stock which first becomes
exercisable during any one calendar year as Incentive Options granted to any
Employee under any option plan of the Corporation (or any parent or subsidiary
corporation) shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds options which become exercisable in
the same calendar year, the foregoing limitation on such options shall be
applied on the basis of the order in which such options are granted. Any options
in excess of such limitation which purport to be Incentive Options shall
automatically be treated as Non-statutory Options.
C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a 10%
Shareholder shall have a term in excess of five (5) years from the grant date.
3. CANCELLATION AND NEW GRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or a
different numbers of shares of Common Stock but having an option price per share
established at the time of such cancellation and regrant in accordance with the
provisions of this Plan.
ARTICLE III
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCES
Shares of Common Stock shall be issuable under the Stock Issuance
Program through direct and immediate issuances without any intervening stock
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") in a form acceptable to the Plan Administrator,
which form shall be in compliance with the provisions of the Plan.
2. ISSUE PRICE
The purchase price per share shall be fixed by the Plan
Administrator, but in no event shall it be less than eighty-five percent (85%)
of the Fair Market Value of a share of Common Stock at the time of issuance.
3. PAYMENT OF ISSUE PRICE
Except as provided in Article IV, Section 1, shares shall be issued
only in exchange for cash, a check payable to the Corporation, for services
previously rendered to the Corporation (or any Parent or Subsidiary) or such
other lawful consideration as may be acceptable to the Plan Administrator.
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ARTICLE IV
MISCELLANEOUS
1. LOANS
A. The Plan Administrator may assist any optionee or issuee (other
than a non-employee director) in the exercise of one or more options granted to
such optionee under the Option Grant Program or the purchase of one or more
shares to be issued to such issuee under the Stock Issuance Program, including
the satisfaction of any Federal and State income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the
Corporation to such optionee or issuee, or (ii) permitting the optionee or
issuee to pay the option price or purchase price for the purchased Common Stock
in installments over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Plan Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events the maximum credit available
to each optionee or issuee may not exceed the sum of (i) the aggregate option
price or purchase price payable for the purchased shares plus (ii) any Federal
and State income and employment tax liability incurred by the optionee or issuee
in connection with such exercise or purchase.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under the financial assistance program
shall be subject to forgiveness by the Corporation in whole or in part upon such
terms and conditions as the Board in its discretion deems appropriate.
2. VESTING OF SHARES AND REPURCHASE RIGHTS
A. The Plan Administrator, in its absolute discretion, may issue
fully and immediately vested shares of Common Stock, or the Plan Administrator
may impose such vesting requirements as it deems appropriate with the
Corporation retaining a right to repurchase any unvested shares. The terms of
the vesting schedule and of the Corporation's repurchase rights shall be as
determined by the Plan Administrator and set forth in the agreement governing
such issuance.
B. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
holder of unvested Common Stock may have the right to receive by reason of a
stock dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting and repurchase
limitations applicable to the unvested Common Stock with respect to which it was
paid or arose, and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.
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C. No person to whom shares of Common Stock have been issued
pursuant to the Plan may transfer any such shares which have not vested.
Notwithstanding the above, the issuee shall have the right to make a gift of
unvested shares acquired under the Plan to his/her spouse, parents or issue or
to a trust established for such spouse, parents or issue, provided the
transferee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Plan and the Issuance or Stock Purchase
Agreement executed by the issuee at the time of his/her acquisition of the
gifted shares.
3. MARKET STAND-OFF AGREEMENTS
The Plan Administrator may require each person to whom any shares
are issued under this Plan to enter into an agreement which restricts or
prohibits the sale of any stock of the Corporation by such person for a
reasonable period of time following a public offering of any shares of stock by
the Corporation.
4. RIGHT OF FIRST REFUSAL
Until such time as the Corporation's outstanding shares of Common
Stock are first registered under Section 12(g) of the 1934 Act, the Plan
Administrator may subject any shares issued pursuant to the Plan to a right of
first refusal with respect to any proposed disposition of such shares other than
a transfer permitted by Section 2.C of this Article IV. Such right of first
refusal shall be exercisable by the Corporation (or its assignees) in accordance
with the terms and conditions specified in the instrument governing the issuance
of such shares.
5. SECURITIES LAWS; LEGENDS
A. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until the Corporation shall have determined
that there has been full and adequate compliance with all applicable
requirements of the Federal and state securities laws and all other applicable
legal and regulatory requirements.
B. Shares issued under the Plan shall bear such legends as the Plan
Administrator deems necessary or appropriate, including such restrictive legends
as the Plan Administrator shall require to reflect the terms of any agreement
between the issuee and the Corporation.
6. SHAREHOLDER RIGHTS
Subject to the rights of the Corporation set forth herein or in any
other agreement entered into between the Corporation and an issuee of shares
under the Plan, each person to whom shares of Common Stock have been issued
under the Plan shall have all the rights of a shareholder with respect to those
shares whether or not his/her interest in such shares is vested. Accordingly,
the issuee shall have the right to vote such shares and to receive any cash
dividends or other distributions paid or made with respect to such shares.
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7. ACCELERATION
The Plan Administrator may, in its discretion, provide for the
automatic acceleration, upon a change of control, corporate transaction and/or
other circumstance, of the time at which any option will become exercisable or
for the lapse of any repurchase right tied to vesting by including a provision
to such effect in the documents evidencing the rights of the optionee or issuee.
The Plan Administrator may accelerate exercisability and/or vesting at such
other times as it may determine in its sole discretion.
8. DEFINITIONS
The following definitions shall be in effect under this Plan:
A. EMPLOYEE shall mean an individual who is in the employ of the
Corporation or any Parent or Subsidiary, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.
B. FAIR MARKET VALUE per share of Common Stock on any relevant date
under the Plan shall be the value determined in accordance with the following
provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any Stock Exchange but is traded on the NASDAQ
National Market System, the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers
through the NASDAQ National Market System or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed or admitted
to trading on any Stock Exchange, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed nor
admitted to trading on any Stock Exchange nor traded on the NASDAQ
National Market System, then such Fair Market Value shall be determined
by the Plan Administrator after taking into account such factors as the
Plan Administrator shall deem appropriate.
C. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of Internal Revenue Code Section 422.
D. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Code Section 422.
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E. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
F. PERMANENT DISABILITY shall have the meaning assigned to such
term in Code Section 22(e)(3).
G. SERVICE shall mean the provision of services to the Corporation
or any Parent or Subsidiary by an individual in the capacity of an Employee, a
non-employee member of the Board or a consultant or independent contractor.
H. SUBSIDIARY shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
I. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation.
9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
10. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
11. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Option Grant Program, the issuance of any shares under the Stock Issuance
Program, and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
12. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual
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is a key Employee whose duties in connection with the Corporation (or any Parent
or Subsidiary) assure such individual access to equivalent information.
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<PAGE> 1
EXHIBIT 10.53
DISCOVERY PARTNERS INTERNATIONAL, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following stock option grant (the "Option")
pursuant to the 1995 STOCK OPTION/STOCK ISSUANCE PLAN (the "Plan") to purchase
shares of the Common Stock of DISCOVERY PARTNERS INTERNATIONAL (the
"Corporation"):
OPTIONEE:_________________________________________________________
GRANT DATE:______________________ GRANT NUMBER: _________
OPTION PRICE: $_____________ PER SHARE NUMBER OF SHARES: _____
VESTING COMMENCEMENT DATE: _________________
EXPIRATION DATE: ___________________ DATE EXERCISABLE: _____
TYPE OF OPTION: ___________________ Incentive Stock Option
Non-Statutory Stock Option
This Option may be exercised at any time for all or any portion of the Option
Shares, whether or not vested.
VESTING SCHEDULE
The Option Shares shall vest in accordance with the following vesting schedule:
(i) No Option Shares shall vest unless and until the Optionee has
completed twelve (12) months of Service (as defined in the Plan)
measured from the Vesting Commencement Date.
(ii) Upon the completion of the twelve (12) month service period
specified in subparagraph (i) above, 25% of the Option Shares
shall become vested.
(iii) The Remaining Option Shares shall vest in a series of successive
equal monthly installments over each of the next thirty-six (36)
months of Service completed by the Optionee after the initial
twelve (12) month Service period specified in subparagraph (i )
above.
Optionee understands that the Option is granted pursuant to the Corporation's
Plan. By signing below, optionee agrees to be bound by the terms and conditions
of the Plan and the terms of conditions of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A. Optionee understands that any
Option Shares purchased under the Option will be subject to the terms and
conditions set forth in the Stock Purchase Agreement attached hereto as Exhibit
B.
Optionee hereby acknowledges receipt of a copy of the Plan in the form attached
hereto as Exhibit C.
REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT OPTION SHARES ACQUIRED UPON
THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO REPURCHASE RIGHTS AND RIGHTS OF
FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS UPON ANY PROPOSED
SALE, ASSIGNMENT, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION OF THE
CORPORATION'S SHARES. THE TERMS AND CONDITIONS OF SUCH RIGHTS ARE SPECIFIED IN
THE STOCK PURCHASE AGREEMENT.
No Employment or Service Contract. Nothing in this Agreement or in the Plan
shall confer upon the Optionee any right to continue in the Service of the
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation or the Optionee, which rights
are hereby expressly reserved by each, to terminate Optionee's Service at any
time for any reason whatsoever, with or without cause.
______________________________________
(date)
DISCOVERY PARTNERS INTERNATIONAL, INC. OPTIONEE
(Name & Address)
BY: _______________________ __________________________
Title: ____________________ __________________________
__________________________
<PAGE> 2
EXHIBIT A
STOCK OPTION AGREEMENT
Filed as Exhibit 10.54 to this Registration Statement
<PAGE> 3
EXHIBIT B
STOCK PURCHASE AGREEMENT
Filed as Exhibit 10.55 to this Registration Statement
<PAGE> 4
EXHIBIT C
1995 STOCK OPTION/STOCK ISSUANCE PLAN
Filed as Exhibit 10.52 to this Registration Statement
<PAGE> 1
EXHIBIT 10.54
DISCOVERY PARTNERS INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of the Corporation has adopted the DISCOVERY
PARTNERS INTERNATIONAL 1995 Stock Option/Stock Issuance Plan (the "Plan") for
the purpose of attracting and retaining the services of persons who contribute
to the growth and financial success of the Corporation.
B. Optionee is a person who the Plan Administrator believes has and will
contribute to the growth and financial success of the Corporation and this
Agreement is entered into pursuant to and is intended to carry out the purposes
of the Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the option price per share (the "Option
Price") specified in the Grant Notice.
2. OPTION TERM. This option shall expire at the close of business on the
expiration date (the "Expiration Date") specified in the Grant Notice, unless
sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or in
part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder approval
is obtained, this option shall thereupon become exercisable for the Option
Shares in one or more installments as is specified in the Grant Notice. As the
option becomes exercisable in one or more installments, the installments shall
accumulate and the option shall remain exercisable for such installments until
the Expiration Date or the sooner termination of the option term under Paragraph
5 or Paragraph 6 of this Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to be exercisable in
whole or in part)
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prior to the Expiration Date should any of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraph (ii) or (iii)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced
to a three (3)-month period commencing with the date of such cessation
of Service, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the law of descent and distribution shall
have the right to exercise this option. Such right shall lapse and this
option shall cease to be exercisable upon the earlier of (A) the
expiration of the twelve (12) month period measured from the date of
Optionee's death or (B) the Expiration Date. Upon the expiration of such
twelve (12) month period or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service while this option is outstanding,
then the Optionee shall have a period of twelve (12) months (commencing
with the date of such cessation of Service) during which to exercise
this option, but in no event shall this option be exercisable at any
time after the Expiration Date. Optionee shall be deemed to be
permanently disabled if Optionee is unable to engage in any substantial
gainful activity for the Corporation or the parent or subsidiary
corporation retaining his/her services 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 twelve (12) months. Upon the
expiration of such limited period of exercisability or (if earlier) upon
the Expiration Date, this option shall terminate and cease to be
outstanding.
(iv) During the limited period of exercisability applicable
under subparagraph (i), (ii) or (iii) above, this option may be
exercised for any or all of the Option Shares for which this option is,
at the time of the Optionee's cessation of Service, exercisable in
accordance with the exercise schedule specified in the Grant Notice and
the provisions of Paragraph 6 of this Agreement.
(v) For purposes of this Paragraph 5 and for all other purposes
under this Agreement:
A. The Optionee shall be deemed to remain in SERVICE for so long
as the Optionee continues to render periodic services to the Corporation
or any parent or subsidiary corporation, whether as an Employee, a
non-employee member of the board of directors, or an independent
contractor or consultant.
B. The Optionee shall be deemed to be an EMPLOYEE of the
Corporation and to continue in the Corporation's employ for so long as
the Optionee
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<PAGE> 3
remains in the employ of the Corporation or one or more of its parent or
subsidiary corporations, subject to the control and direction of the
employer entity as to both the work to be performed and the manner and
method of performance.
C. A corporation shall be considered to be a SUBSIDIARY
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such
corporation in the chain (other than the last corporation) owns, at the
time of determination, stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
D. A corporation shall be considered to be a PARENT corporation
of the Corporation if it is a member of an unbroken chain ending with
the Corporation, provided each such corporation in the chain (other than
the Corporation) owns, at the time of determination, stock possessing
50% or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall
terminate and cease to be exercisable upon the consummation of one or more of
the following shareholder-approved transactions (a "Corporate Transaction")
unless this Option is expressly assumed by the successor corporation or parent
thereof:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting in
concert acquire, in the aggregate, more than 50% of the outstanding shares of
the stock of the Corporation.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
C. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate in the event the Optionee's Service should subsequently terminate by
reason of an Involuntary Termination within twelve (12) months following the
effective date of such Corporate Transaction. Any options so accelerated shall
remain exercisable for fully-vested shares until the
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<PAGE> 4
earlier of (i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the Involuntary
Termination. Involuntary Termination shall mean the termination of the Service
of any individual which occurs by reason of such individual's involuntary
dismissal or discharge by the Corporation for reasons other than Misconduct, or
such individual's voluntary resignation following a reduction in his or her
level of compensation (including base salary, fringe benefits) by more than
fifteen percent (15%) or a relocation of such individual's place of employment
by more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's consent.
Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
D. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES.
A. In the event any change is made to the Corporation's outstanding
Common Stock by reason of any stock split, stock dividend, combination of
shares, exchange of shares, or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the total number of Option Shares subject to this option,
(ii) the number of Option Shares for which this option is to be exercisable from
and after each installment date specified in the Grant Notice and (iii) the
Option Price payable per share in order to reflect such change and thereby
preclude a dilution or enlargement of benefits hereunder, provided that no
adjustment shall be made to the option or the shares available under any option
in connection with any exchange of common stock issued to investors for Series A
Preferred stock.
B. If this option is to be assumed in connection with a Corporate
Transaction described in Paragraph 6 or is otherwise to remain outstanding, then
this option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issuable to the Optionee in the consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Option Price
payable per share, provided the aggregate Option Price payable hereunder shall
remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.
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<PAGE> 5
9. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions: (i) Execute and deliver to the Secretary of the Corporation a stock
purchase agreement (the "Purchase Agreement") in substantially the form of
Exhibit B to the Grant Notice; (ii) pay the aggregate Option Price for the
purchased shares in one or more forms approved under the Plan; and (iii) furnish
to the Corporation appropriate documentation that the person or persons
exercising the option, if other than Optionee, have the right to exercise this
option.
B. Should the Corporation's outstanding Common Stock be registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") at the time the option is exercised, then the Option Price may also
be paid as follows:
(i) in shares of Common Stock held by the Optionee for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at fair market
value on the Exercise Date; or
(ii) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to
a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Option Price payable for the purchased shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Corporation by reason of such purchase and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to effect the sale transaction.
C. For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the NASDAQ National Market
System, the fair market value shall be the closing selling price of one share of
Common Stock on the date in question, as such price is reported by the National
Association of Securities Dealers through its NASDAQ system or any successor
system. If there is no closing selling price for the Common Stock on the date in
question, then the closing selling price on the last preceding date for which
such quotation exists shall be determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to trading
on any stock exchange, then the fair market value shall be the closing selling
price per share of Common Stock on the date in question on the stock exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common
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<PAGE> 6
Stock on such exchange on the date in question, then the fair market value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the value determined
pursuant to subparagraphs (i) and (ii) above does not accurately reflect the
fair market value of the Common Stock, then such fair market value shall be
determined by the Plan Administrator after taking into account such factors as
the Plan Administrator shall deem appropriate.
D. As soon after the Exercise Date as practical, the Corporation
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for, with the appropriate legends affixed thereto, in accordance with
the terms of the Stock Purchase Agreement.
E. In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares
upon such exercise shall be subject to compliance by the Corporation and the
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the
Corporation's Common Stock may be listed at the time of such exercise and
issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Article IV, Section 3, of the
Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such
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approval shall not have been obtained. The Corporation, however, shall use its
best efforts to obtain all such approvals.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING, LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. Notwithstanding any
provision of this Agreement to the contrary, this option may not be exercised in
whole or in part until such shareholder approval is obtained. In the event that
such shareholder approval is not obtained, then this option shall thereupon
terminate in its entirety and the Optionee shall have no further rights to
acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
A. This option shall cease to qualify for favorable tax treatment as
an incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date the Optionee ceases to be an Employee by reason of
permanent disability.
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<PAGE> 8
B. Should this option be designated as immediately exercisable in
the Grant Notice, then this option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate fair market value
(determined at the Grant Date) of the Corporation's Common Stock for which this
option would otherwise first become exercisable in such calendar year would,
when added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which this option
or one or more other incentive stock options granted to the Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or its parent or subsidiary corporations) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18.B would not
be contravened.
C. Should this option be designated as exercisable in installments
in the Grant Notice, then no installment under this option (whether annual or
monthly) shall qualify for favorable tax treatment as an incentive stock option
under the Federal tax laws if (and to the extent) the aggregate fair market
value (determined at the Grant Date) of the Corporation's Common Stock for which
such installment first becomes exercisable hereunder will, when added to the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Corporation's Common Stock for which one or more other incentive
stock options granted to the Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any parent or subsidiary
corporation) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate.
19. WITHHOLDING. Optionee hereby agrees to make appropriate arrangements
with the Corporation or parent or subsidiary corporation employing Optionee for
the payment of all Federal, State or local income tax withholding requirements
and Federal employment taxes applicable to the exercise of this option.
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EXHIBIT 10.55
DISCOVERY PARTNERS INTERNATIONAL, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this __ day of _________, 19__ , by and among
DISCOVERY PARTNERS INTERNATIONAL, INC. (the "Corporation"), _________, the
holder of a stock option (the "Optionee") under the Corporation's 1995 Stock
Option/Stock Issuance Plan and _________, the Optionee's spouse.
I. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases _________ shares
("Purchased Shares") of the Corporation's common stock ("Common Stock") pursuant
to that certain option ("Option") granted Optionee on ___________, 19__ ("Grant
Date") to purchase up to _________ shares of the Common Stock ("Total
Purchasable Shares") under the Corporation's 1995 Stock Option/Stock Issuance
Plan (the "Plan") at an option price of $_________ per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to
the Corporate Secretary of the Corporation, Optionee shall pay the Option Price
for the Purchased Shares in accordance with the provisions of the agreement
between the Corporation and Optionee evidencing the Option (the "Option
Agreement") and shall deliver whatever additional documents may be required by
the Option Agreement as a condition for exercise, together with a duly-executed
blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares hereunder shall be held in escrow by the Corporate Secretary of
the Corporation in accordance with the provisions of Article VII to the extent
such Shares are subject to the Repurchase Right contained in Article V hereof.
Certificates for all other Purchased Shares shall be delivered to Optionee as
soon as reasonably practicable following the date hereof.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation actually
exercises its repurchase right, rights of first refusal or special purchase
right under this Agreement, Optionee (or any successor in interest) shall have
all the rights of a shareholder (including voting and dividend rights) with
respect to the Purchased Shares, including the Purchased Shares held in escrow
under Article VII, subject, however, to the transfer restrictions of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Participant in reliance upon Participant's representation to the Company, which
by Participant's execution of this Agreement Participant hereby confirms, that
the Shares are being acquired for investment for Participant'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 Participant has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, Participant further represents that Participant 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 Shares. Participant represents that he has full power and
authority to enter into this Agreement.
2.2 EXEMPTION FROM REGISTRATION. The Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are accordingly being issued to Optionee in reliance upon the exemption from
such registration provided by Rule 701 of the Securities
<PAGE> 2
and Exchange Commission for stock issuances under compensatory benefit plans
such as the Plan. Optionee hereby acknowledges previous receipt of a copy of the
documentation for such Plan in the form of Exhibit C to the Notice of Grant of
Stock Option (the "Grant Notice") accompanying the Option Agreement.
2.3 RESTRICTED SECURITIES.
A. Optionee hereby confirms that Optionee has been informed that
the Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Purchased Shares, to the extent vested under Article V, may
be sold (without registration) pursuant to the applicable requirements of Rule
144. If Optionee is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two (2)-year holding period requirement
of the Rule will not be applicable. If Optionee is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Purchased Shares held for less than
three (3) years following payment in cash of the Option Price therefor) will be
applicable to the sale.
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act then Optionee may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Purchased Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Purchased Shares have been held
for a period of three (3) years following the payment in cash of the Option
Price for such shares.
2.4 DISPOSITION OF SHARES. Optionee hereby agrees that Optionee
shall make no disposition of the Purchased Shares (other than a permitted
transfer under paragraph 4. 1) unless and until there is compliance with all of
the following requirements:
(a) Optionee shall have notified the Corporation of the
proposed disposition and provided a written summary of the
terms and conditions of the proposed disposition.
(b) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the
Purchased Shares.
(c) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to
the Corporation, that (i) the proposed disposition does not
require registration of the Purchased Shares under the 1933
Act or (ii) all appropriate action necessary for compliance
with the registration
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<PAGE> 3
requirements of the 1933 Act or of any exemption from
registration available under the 1933 Act (including Rule
144) has been taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Article II nor (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including one or more of the
following legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares
may not be sold or offered for sale in the absence of (a) an
effective registration statement for the shares under such
Act (b) a `no action' letter of the Securities and Exchange
Commission with respect to such sale or offer, or (c)
satisfactory assurances to the Corporation that registration
under such Act is not required with respect to such sale or
offer."
(ii) "The shares represented by this certificate are
unvested and accordingly may not be sold, assigned,
transferred, encumbered, or in any manner disposed of except
in conformity with the terms of a written agreement dated
___________, 19__ between the Corporation and the registered
holder of the shares (or the predecessor in interest to the
shares). Such agreement grants certain repurchase rights and
rights of first refusal to the Corporation (or its
assignees) upon the sale, assignment, transfer, encumbrance
or other disposition of the Corporation's shares or upon
termination of service with the Corporation. The Corporation
will upon written request furnish a copy of such agreement
to the holder hereof without charge."
III. SPECIAL TAX ELECTION
3.1 SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE OF A
NON-STATUTORY STOCK OPTION. If the Purchased Shares are unvested and are
acquired hereunder pursuant to the exercise of a non-statutory stock option, as
specified in the Grant Notice, then the Optionee understands that under Section
83 of the Internal Revenue Code of 1986, as amended (the "Code"), the excess of
the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Option Price paid for such
shares will be reportable as ordinary income on such lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right
provided under Article V of this Agreement. Optionee understands that he/she may
elect under Section 83(b) of the Code to be taxed at the time the Purchased
Shares are acquired hereunder, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the fair market value of the Purchased Shares at the date of
this Agreement equals the Option Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. OPTIONEE UNDERSTANDS
THAT FAILURE TO MAKE THIS FILING WITHIN THE THIRTY (30)-DAY PERIOD WELL RESULT
IN THE RECOGNITION OF ORDINARY INCOME BY THE OPTIONEE AS THE FORFEITURE
RESTRICTIONS LAPSE.
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<PAGE> 4
3.2 CONDITIONAL SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE
OF AN INCENTIVE STOCK OPTION. If the Purchased Shares are unvested and are
acquired hereunder pursuant to the exercise of an incentive stock option under
the Federal tax laws, as specified in the Grant Notice, then the following tax
principles shall be applicable to the Purchased Shares:
A. For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
B. The excess of (i) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on
the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (ii) the Option Price paid for
the Purchased Shares will be includible in the Optionee's
taxable income for alternative minimum tax purposes.
C. If the Optionee makes a disqualifying disposition of the
Purchased Shares, then the Optionee will recognize ordinary
income in the year of such disposition equal in amount to
the excess of (i) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on
the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (ii) the Option Price paid for
the Purchased Shares. Any additional gain recognized upon
the disqualifying disposition will be either short-term or
long-term capital gain depending upon the period for which
the Purchased Shares are held prior to the disposition.
D. For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to
repurchase the Purchased Shares pursuant to the Repurchase
Right provided under Article V of this Agreement. The term
"disqualifying disposition" means any sale or other
disposition/ of the Purchased Shares within two (2) years
after the Grant Date or within one (1) year after the
execution date of this Agreement.
E. In the absence of final Treasury Regulations relating to
incentive stock options, it is not certain whether the
Optionee may, in connection with the exercise of the Option
for any Purchased Shares at the time subject to forfeiture
restrictions, file a protective election under Section 83(b)
of the Code which would limit (I) the Optionee's alternative
minimum taxable income upon exercise and (II) the Optionee's
ordinary income upon a disqualifying disposition, to the
excess of (i) the fair market value of the Purchased Shares
on the date the Option is exercised over (ii) the Option
Price paid for the Purchased Shares. THE APPROPRIATE FORM
FOR MAKING SUCH A PROTECTIVE ELECTION IS ATTACHED AS EXHIBIT
II TO THIS AGREEMENT AND MUST BE FILED WITH THE INTERNAL
REVENUE SERVICE WITHIN THIRTY (30) DAYS AFTER THE DATE OF
THIS
- -----------------------
// Generally, a disposition of shares purchased under an incentive stock
option includes any transfer of legal title, including a transfer by sale,
exchange or gift, but does not include a transfer to the Optionee's spouse, a
transfer into joint ownership with right of survivorship if Optionee remains one
of the joint owners, a pledge, a transfer by bequest or inheritance or certain
tax free exchanges permitted under the Code.
4
<PAGE> 5
AGREEMENT. HOWEVER, SUCH ELECTION IF PROPERLY FILED WILL
ONLY BE ALLOWED TO THE EXTENT THE FINAL TREASURY REGULATIONS
PERMIT SUCH A PROTECTIVE ELECTION.
3.3 OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be made by registered
or certified mail, return receipt requested, and Optionee must retain two (2)
copies of the completed form for filing with his or her State and Federal tax
returns for the current tax year and an additional copy for his or her records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article V. In addition, Purchased
Shares which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article VI. Such
restrictions on transfer, however, shall not be applicable to (i) a gratuitous
transfer of the Purchased Shares made to the Optionee's spouse or issue,
including adopted children, or to a trust for the exclusive benefit of the
Optionee or the Optionee's spouse or issue, provided and only if the Optionee
obtains the Corporation's prior written consent to such transfer, (ii) a
transfer of title to the Purchased Shares effected pursuant to the Optionee's
will or the laws of intestate succession or (iii) a transfer to the Corporation
in pledge as security for any purchase-money indebtedness incurred by the
Optionee in connection with the acquisition of the Purchased Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of one of the
permitted transfers specified in paragraph 4.1 must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Corporation that
such person is bound by the provisions of this Agreement and that the
transferred shares are subject to (i) both the Corporation's Repurchase Right
and the Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such shares would be
so subject if retained by the Optionee.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII, of this Agreement, the term "Owner" shall include the Optionee and all
subsequent holders of the Purchased Shares who derive their chain of ownership
through a permitted transfer from the Optionee in accordance with paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such limitations shall be in effect for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred-eighty (180) days. The
limitations of this paragraph 4.4 shall remain in effect for the two-year
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<PAGE> 6
period immediately following the effective date of the Corporation's initial
public offering and shall thereafter terminate and cease to have any force or
effect.
B. Owner shall be subject to the market stand-off provisions
of this paragraph 4.4 provided and only if the officers and directors of the
Corporation are also subject to similar arrangements.
C. In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected as a class without receipt of consideration, then any new,
substituted or additional securities distributed with respect to the Purchased
Shares shall be immediately subject to the provisions of this paragraph 4.4, to
the same extent the Purchased Shares are at such time covered by such
provisions.
D. In order to enforce the limitations of this paragraph
4.4, the Corporation may impose stop-transfer instructions with respect to the
Purchased Shares until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Optionee ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Option Price all or (at the discretion of the
Corporation and with the consent of the Optionee) any portion of the Purchased
Shares in which the Optionee has not acquired a vested interest, if any, in
accordance with the vesting provisions of paragraph 5.3 (such shares to be
hereinafter called the "Unvested Shares").
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to the Option Price
previously paid for the Unvested Shares which are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all previously
Unvested Shares in which the Optionee becomes vested in accordance with the
vesting schedule specified in the Grant Notice. All Purchased Shares as to which
the Repurchase Right lapses shall, however, continue to be subject to (i) the
First Refusal Right of the Corporation and its assignees under Article VI, (ii)
the market stand-off provisions of paragraph 4.4 and (iii) the Special Purchase
Right under Article VIII.
5.4 AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that the Optionee is a party to one or more other
Stock Purchase Agreements ("Prior
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<PAGE> 7
Purchase Agreements") which are executed prior to the date of this Agreement,
then the total number of Purchased Shares as to which the Optionee shall be
deemed to have a fully-vested interest under this Agreement and all Prior
Purchase Agreements shall not exceed in the aggregate the number of Purchased
Shares in which the Optionee would otherwise at the time be vested, in
accordance with the vesting provisions of paragraph 5.3, had all the Purchased
Shares been acquired exclusively under this Agreement.
5.5 FRACTIONAL SHARES. No fractional shares shall be repurchased by
the Corporation. Accordingly, should the Repurchase Right extend to a fractional
share (in accordance with the vesting provisions of paragraph 5.3) at the time
the Optionee ceases Service, then such fractional share shall be added to any
fractional share in which the Optionee is at such time vested in order to make
one whole vested share no longer subject to the Repurchase Right.
5.6 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of
any stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares hereunder
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
remain the same.
5.7 CORPORATE TRANSACTION.
A. Immediately prior to the consummation of any of the following
shareholder approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by
the Corporation for cash) in or by means of which one or more persons
acting in concert acquire, in the aggregate, more than 50% of the
outstanding shares of the stock of the Corporation, the Repurchase Right
shall automatically lapse in its entirety except to the extent the
Repurchase Right is to be assigned to the successor corporation (or its
parent company) in connection with such Corporate Transaction.
B. To the extent the Repurchase Right remains in effect following
such Corporate Transaction, such right shall apply to the new capital stock or
other property (including cash) received in exchange for the Purchased Shares in
consummation of the Corporate Transaction, but only to the extent the Purchased
Shares are at the time covered by such right. Appropriate adjustments shall be
made to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same.
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<PAGE> 8
C. Any Repurchase Rights which remain in effect following such
Corporate Transaction, shall automatically cease to be exercisable immediately
prior to Optionee's terminator, of Service should Optionee's Service
subsequently terminate by reason of an Involuntary Termination within twelve
(12) months following the effective date of such Corporate Transaction.
Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of such individuals involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or such
individual's voluntary resignation following a reduction in his or her level of
compensation (including base salary, fringe benefits) by more than fifteen
percent (15%) or a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent. Misconduct
shall mean the commission of any act of fraud, embezzlement or dishonesty by the
Optionee or Participant, any unauthorized use or disclosure by such person of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
D. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted rights of ` first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article V. For purposes of this Article VI, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the Owner,
but shall not include any of the permitted transfers under paragraph 4. 1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles II and IV of this Agreement.
6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the right
to repurchase any or all of the Target Shares specified in the Disposition
Notice upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such right
shall be exercisable by delivery of written notice (the "Exercise Notice") to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the Target Shares to be repurchased, each certificate to be properly endorsed
for transfer. To the extent any of the Target Shares are at the time held in
escrow under Article VII, the certificates for such shares shall automatically
be released from escrow and delivered to the Corporation for purchase. Should
the
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purchase price specified in the Disposition Notice be payable in property other
than cash or evidences of indebtedness, the Corporation (or its assignees) shall
have the right to pay the purchase price in the form of cash equal in amount to
the value of such property. If the Owner and the Corporation (or its assignees)
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by the Owner and the Corporation (or its
assignees) or, if they cannot agree on an appraiser within twenty (20) days
after the Corporation's receipt of the Disposition Notice, each shall select an
appraiser of recognized standing and the two appraisers shall designate a third
appraiser of recognized standing, whose appraisal shall be determinative of such
value. The cost of such appraisal shall be shared equally by the Owner and the
Corporation. The closing shall then be held on the later of (i) the tenth
business day following delivery of the Exercise Notice or (ii) the tenth
business day after such cash valuation shall have been made.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; provided,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of Article II and (ii) the
market stand-off provisions of paragraph 4.4. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the Corporation's First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or its
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within thirty (30) days after the date of the Disposition Notice, to
effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of paragraph 6.4, as if the
Corporation did not exercise the First Refusal Right hereunder; or
(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its assignees)
has elected to purchase, such sale to be effected in substantial
conformity with the provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 RECAPITALIZATION/MERGER.
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the
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Corporation's First Refusal Right hereunder, but only to the extent the
Purchased Shares are at the time covered by such right.
(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the Corporation
is not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons
other than those who held such securities immediately prior to the
merger, or
(iv) any transaction effected primarily to change the
State in which the Corporation is incorporated, or to create a
holding company structure,
the Corporation's First Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares in consummation of the transaction
but only to the extent the Purchased Shares are at the time covered by such
right.
6.7 LAPSE. The First Refusal Right under this Article VI shall
lapse and cease to have effect upon the earliest to occur of (i) the first date
on which shares of the Corporation's Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the
Corporation's Board of Directors that a public market exists for the outstanding
shares of the Corporation's Common Stock, or (iii) a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $5.000,000. However, the market
stand-off provisions of paragraph 4.4 shall continue to remain in full force and
effect following the lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporate
Secretary of the Corporation to be held in accordance with the provisions of
this Article VII. Each deposited certificate shall be accompanied by a
duly-executed Assignment Separate from Certificate in the form of Exhibit I. The
deposited certificates, together with any other assets or securities from time
to time deposited with the Corporate Secretary pursuant to the requirements of
this Agreement, shall remain in escrow until such time or times as the
certificates (or other assets and securities) are to be released or otherwise
surrendered for cancellation in accordance with paragraph 7.3. Upon delivery of
the certificates (or other assets and securities) to the Corporate Secretary of
the Corporation, the Owner shall be issued an instrument of deposit
acknowledging the number of Unvested Shares (or other assets and securities)
delivered in escrow.
7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is
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<PAGE> 11
by reason of such transaction distributed with respect to the Unvested Shares
shall be immediately delivered to the Corporate Secretary to be held in escrow
under this Article VII, but only to the extent the Unvested Shares are at the
time subject to the escrow requirements of paragraph 7. 1.
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any other
assets or securities held in escrow hereunder, shall be subject to the following
terms and conditions relating to their release from escrow or their surrender to
the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any
Unvested Shares, then the escrowed certificates for such Unvested Shares
(together with any other assets or securities issued with respect
thereto) shall be delivered to the Corporation concurrently with the
payment to the Owner, in cash or cash equivalent (including the
cancellation of any purchase-money indebtedness), of an amount equal to
the aggregate Option Price for such Unvested Shares, and the Owner shall
cease to have any further rights or claims with respect to such Unvested
Shares (or other assets or securities attributable to such Unvested
Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to
the Owner, be surrendered to the Corporation, and the Owner shall cease
to have any further rights or claims with respect to such Target Shares
(or other assets or securities).
(iii) Should the Corporation (or its assignees) elect not to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested shares (as well as all other vested assets and securities) shall
be released from escrow and delivered to the Owner in accordance with
the following schedule:
a. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the Grant Date.
b. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at
semiannual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
c. Upon the Optionee's cessation of Service, any
escrowed Purchased Shares (or other assets or securities) in which
the Optionee is at the time vested shall be promptly released from
escrow.
d. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, any Purchased Shares (or
11
<PAGE> 12
other assets or securities) at the time held in escrow hereunder
shall promptly be released to the Owner as fully-vested shares or
other property.
(v) All Purchased Shares (or other assets or securities)
released from escrow in accordance with the provisions of subparagraph
(iv) above shall nevertheless remain subject to (I) the Corporation's
First Refusal Right under Article VI until such right lapses pursuant to
paragraph 6.7, (II) the market stand-off provisions of paragraph 4.4
until such provisions terminate in accordance therewith and (III) the
Special Purchase Right under Article VIII.
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Optionee's
marriage or the legal separation of the Optioned and the Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right"), exercisable at
any time during the thirty (30)-day period following the Corporation's receipt
of the required Dissolution Notice under paragraph 8.2, to purchase from the
Optionee's spouse, in accordance with the provisions of paragraph 8.3, all or
any portion of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Optionee shall promptly
provide the Secretary of the Corporation with written notice (the "Dissolution
Notice") of (i) the entry of any judicial decree or order resolving the property
rights of the Optionee and the Optionee's spouse in connection with their
marital dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Optionee and the Optionee's
spouse which provides for the award to the spouse of one or more Purchased
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
the Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice), and the fair market value to be paid for such Purchased Shares. The
Optionee (or the Optionee's spouse, to the extent such spouse has physical
possession of the Purchased Shares) shall, prior to the close of business on the
date specified for the purchase, deliver to the Corporate Secretary of the
Corporation the certificates representing the shares to be purchased, each
certificate to be properly endorsed for transfer. To the extent any of the
shares to be purchased by the Corporation are at the time held in escrow under
Article VII, the certificates for such shares shall be promptly delivered out of
escrow to the Corporation. The Corporation shall, concurrently with the receipt
of the stock certificates, pay to the Optionee's spouse (in cash or cash
equivalents) an amount equal to the fair market value specified for such shares
in the Purchase Notice.
If the Optionee's spouse does not agree with the fair market value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers shall
designate a third appraiser of recognized standing whose appraisal shall be
determinative of such value. The cost of the appraisal shall be shared equally
by the Corporation and the Optionee's spouse. The closing shall then be held on
the fifth business day following the
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<PAGE> 13
completion of such appraisal; provided, however, that if the appraised value is
more than fifteen percent (15%) greater than the fair market value specified for
the shares in the Purchase Notice, the Corporation shall have the right,
exercisable prior to the expiration of such five (5)-business-day period, to
rescind the exercise of the Special Purchase Right and thereby revoke its
election to purchase the shares awarded to the spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII shall
lapse and cease to have effect upon the earlier to occur of (i) the first date
on which the First Refusal Right under Article VI lapses or (ii) the expiration
of the thirty (30)-day exercise period specified in paragraph 8.3, to the extent
the Special Purchase Right is not timely exercised in accordance with such
paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the fair
market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
9.2 DEFINITIONS. Except as otherwise provided herein, capitalized
terms shall have the meanings assigned to them in the Plan.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon the Optionee any right to continue in the Service
of the Corporation (or any parent or subsidiary corporation of the Corporation
employing or retaining Optionee) for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any parent or subsidiary corporation of the Corporation employing or
retaining Optionee) or the Optionee, which rights are hereby expressly reserved
by each, to terminate the Optionee's Service at any time for any reason
whatsoever, with or without cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or (ii)
the disposition of any Purchased Shares covered thereby shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit in
the United States mail, registered or certified, postage prepaid and addressed
to the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph 9.4 to
all other parties to this Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its assignees) in
any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article VI, or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article VIII shall not constitute a waiver of any other repurchase
rights and/or rights of first refusal that may subsequently arise under the
provisions of this Agreement or any other agreement between the Corporation and
the Optionee or the Optionee's spouse. No waiver of any breach or condition of
this
13
<PAGE> 14
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Purchased Shares to be repurchased
in accordance with the provisions of this Agreement then from and after such
time, the person from whom such shares are to be repurchased 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), and such
shares shall be deemed purchased in accordance with the applicable provisions
hereof and the Corporation (or its assignees) shall be deemed the owner and
holder of such shares, whether or not the certificates therefor have been
delivered as required by this Agreement.
X. MISCELLANEOUS PROVISIONS
10.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
10.3 GOVERNING 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 without resort
to that State's conflict-of-laws rules.
10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
10.6 POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact, for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Optionee shall lawfully do and cause to be done by virtue of
this power of attorney.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
Discovery Partners International, Inc.
By:
--------------------------------
Jack Fitzpatrick
Title: Chief Financial Officer
-----------------------------
Address: 11149 North Torrey Pines Road
-----------------------------------
La Jolla, CA 92037
-----------------------------------
-----------------------------------
Optionee*/
Signature
-----------------------------------
Address:
-----------------------------------
-----------------------------------
- -----------------
// I have executed the Section 83(b) election that was attached hereto
as an Exhibit. As set forth in Article III, I understand that I, and not the
Corporation, will be responsible for completing the form and filing the election
with the appropriate office of the Federal and State tax authorities and that if
such filing is not completed within thirty (30) days after the date of this
Agreement, I will not be entitled to the tax benefits provided by Section 83(b).
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<PAGE> 16
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting the Optionee the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.
------------------------------------
Optionee's Spouse
Signature
------------------------------------
Address: ------------------------------------
------------------------------------
16
<PAGE> 17
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ________________ hereby sell(s), assign(s) and
transfer(s) unto DISCOVERY PARTNERS INTERNATIONAL (the "Corporation"),
_______________ (_____) shares of the Common Stock of the Corporation standing
in his\her name on the books of the Corporation represented by Certificate No.
______________ and do hereby irrevocably constitute and appoint
_______________________ as Attorney to transfer the said stock on the books of
the Corporation with full power of substitution in the premises.
Dated: _______________
Signature
--------------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
<PAGE> 18
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is _______
shares of the common stock of DISCOVERY PARTNERS INTERNATIONAL, INC.
(3) The property was issued on _______________, 19__.
(4) The taxable year in which the election is being made is the calendar
year 19__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of annual
and monthly installments over a four (4) year period ending on
_______________________.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $____ per share.
(7) The amount paid for such property is $____ per share.
(8) A copy of this statement was furnished to DISCOVERY PARTNERS
INTERNATIONAL, INC. for whom taxpayer rendered the service underlying
the transfer of property.
(9) This statement is executed as of: _________________, 19__.
- ----------------------------------- -----------------------------------
Spouse (if any) Taxpayer
<PAGE> 19
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Code. Accordingly, it is the intent of the
Taxpayer to utilize this election to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Internal Revenue Code.
2. Section 42 1 (a)(1) of the Code expressly excludes from income
any excess of the fair market value of the purchased shares over the amount paid
for such shares. Accordingly, this election is also intended to be effective in
the event there is a "disqualifying disposition" of the shares, within the
meaning of Section 421(b) of the Code, which would otherwise render the
provisions of Section 83(a) of the Code applicable at that time. Consequently,
the Taxpayer hereby elects to have the amount of disqualifying disposition
income measured by the excess of the fair market value of the purchased shares
on the date of transfer to the Taxpayer over the amount paid for such shares.
Since Section 421(a) presently applies to the shares which are the subject of
this Section 83(b) election, no taxable income is actually recognized for
regular tax purposes at this time, and no income taxes are payable, by the
Taxpayer as a result of this election.
This form should be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN INCENTIVE
STOCK OPTION.
Exhibit II-2
<PAGE> 1
EXHIBIT 10.57
AXYS ADVANCED TECHNOLOGIES, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED SEPTEMBER 30,1999
APPROVED BY STOCKHOLDERS SEPTEMBER 30, 1999
TERMINATION DATE: SEPTEMBER 29, 2009
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (iii) Nonstatutory
Stock Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.'
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Axys Advanced Technologies, Inc., a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, who is engaged
by the Company or an Affiliate to render consulting or advisory services and who
is compensated for such services. However, the term "Consultant" shall not
include either Directors of the
1.
<PAGE> 2
Company who are not compensated by the Company for their services as Directors
or Directors of the Company who are merely paid a director's fee by the Company
for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board, in
its sold discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by the
Board, including sick leave, military leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.
(1) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable.
2.
<PAGE> 3
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not posses an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (iii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person designated
by the Company as an officer and (iii) on and after the Listing Date, a person
who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
3.
<PAGE> 4
(w) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (iii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this Axys Advanced Technologies, Inc. 1999 Equity
Incentive Plan.
(z) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each, Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
4.
<PAGE> 5
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) To terminate or suspend the Plan as provided in Section 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to
a Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or per-sons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. `Me Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (1) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (2) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code; and/or (iii)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TOP THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate one million seven hundred
sixty-five thousand (1,765,000) shares of Common Stock.
5.
<PAGE> 6
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full (or vested in the case of Restricted Stock), the
stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. If any Common Stock acquired pursuant to
the exercise of an Option shall for any reason be repurchased by the Company
under an unvested share repurchase option provided under the Plan, the stock
repurchased by the Company under such repurchase option shall not revert to and
again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
(d) SHARE RESERVE LIMITATION. Prior to the Listing Date, at no time
shall the total number of shares issuable upon exercise of all outstanding
Options and the total number of shares provided for under any stock bonus or
similar plan of the Company exceed the applicable percentage as calculated in
accordance with the conditions and exclusions of Section 260.140.45 of Title 10
of the California Code of Regulations, based on the shares of the Company which
are outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for the grant of a Nonstatutory Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for a restricted stock award unless the purchase price of the
restricted stock is at least one hundred percent (100%) of the Fair Market Value
of the Common Stock at the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than three hundred thousand (300,000) shares of
the Common Stock during any calendar year. This subsection 5(c) shall not apply
prior to the Listing Date and, following the Listing Date, this subsection 5(c)
shall not apply until (i) the earliest of: (1) the first material modification
of the Plan (including any increase in the number of shares reserved for
issuance under the Plan in accordance with Section 4); (2) the issuance of all
of the shares of Common
6.
<PAGE> 7
Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or
(4) the first meeting of stockholders at which Directors of the Company are to
be elected that occurs after the close of the third calendar year following the
calendar year in which occurred the first registration of an equity security
under Section 12 of the Exchange Act; or (iii) such other date required by
Section 162(m) of the Code and the rules and regulations promulgated thereunder.
(d) CONSULTANTS.
(i) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701 and
will satisfy another exemption under the Securities Act as well as comply with
the securities laws of all other relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (iii) that such
grant complies with the securities laws of all other relevant jurisdictions.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an
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<PAGE> 8
Incentive Stock Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
per-cent (85%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory
Stock Option may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (iii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by (1) delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or (3) in any
other form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock
Option granted on or after the Listing Date shall be transferable to the extent
provided in the Option Agreement. If the Nonstatutory Stock Option does not
provide for transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
8.
<PAGE> 9
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date shall
provide for vesting of the total number of shares at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was granted,
subject to reasonable conditions such as continued employment. However, in the
case of such Options granted to Officers, Directors or Consultants, the Option
may become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option - may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to the
Option.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement, which, for
Options granted prior to the Listing Date, shall not be less than thirty (30)
days, unless such termination is for cause), or (iii) the expiration of the term
of the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (iii) the expiration of a period
of three (3) months after the termination of the Optionholder's Continuous
Service during which the exercise of the Option would not be in violation of
such registration requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement, which, for Options granted prior to the Listing Date, shall
not be less than six (6) months) or (iii) the expiration of the term of the
Option as set forth in the Option Agreement. If,
9.
<PAGE> 10
after termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (iii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date twelve (12) months following
the date of death (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
Subject to the "Repurchase Limitation" in subsection 10(h), any unvested shares
so purchased may be subject to an unvested share repurchase option in favor of
the Company or to any other restriction the Board determines to be appropriate.
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares acquired by the Optionholder pursuant to the exercise of the
Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this subsection 6(o), such right of
first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the term and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (iii) have an expiration date which is the same as the expiration date
of the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred per-
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<PAGE> 11
cent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load
Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option shall be subject to the same exercise price and term
provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in consideration
for past services actually rendered to the Company for its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a- share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to
the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before the
Listing Date, rights to acquire shares under the stock bonus agreement shall not
be transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Participant only by the
Participant. For a stock bonus award made on or after the Listing Date, rights
to acquire shares under the stock bonus agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the stock
bonus agreement, as the Board
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<PAGE> 12
shall determine in its discretion, so long as stock awarded under the stock
bonus agreement remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated. For restricted stock
awards made on or after the Listing Date, the purchase price shall not be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of stock acquired pursuant
to the restricted stock purchase agreement shall be paid either: (i) in cash at
the time of purchase; (iii) at the discretion of the Board, according to a
deferred payment or other arrangement with the Participant; or (iii) in any
other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in Delaware, then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Urnitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to -be determined by the
Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to
the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made before the
Listing Date, rights to acquire shares under the restricted stock purchase
agreement shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a restricted stock award made on or after the
Listing Date, rights to acquire shares under the restricted stock purchase
agreement shall be transferable by the Participant only upon such terms and
conditions as are set
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forth in the restricted stock purchase agreement, as the Board shall determine
in its discretion, so long as stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock Awards any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock
Award was granted or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or
without cause, (iii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director
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pursuant to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or the
Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (iii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (iii)
authorizing the Company to withhold shares from the shares of the Common Stock
otherwise issuable to the participant as a result of the exercise or acquisition
of stock under the Stock Award; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock. Notwithstanding the foregoing, the
Company shall not be authorized to withhold shares of Common Stock at rates in
excess of the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key
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<PAGE> 15
Employees whose duties in connection with the Company assure them access to
equivalent information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in a Stock Award
granted prior to the listing Date to a person who is not an Officer, Director or
Consultant shall be upon the terms described below:
(i) FAIR MARKET VALUE. If the repurchase option gives the Company
the right to repurchase the shares upon termination of employment at not less
than the Fair Market Value of the shares to be purchased on the date of
termination of Continuous Service, then (i) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the shares
within ninety (90) days of termination of Continuous Service (or in the case of
shares issued upon exercise of Stock Awards after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period as
may be agreed to by the Company and the Participant (for example, for purposes
of satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (iii) the right terminates when the shares
become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares upon termination of Continuous
Service at the original purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent (20%)
of the shares per year over five (5) years from the date the Stock Award is
granted (without respect to the date the Stock Award was exercised or became
exercisable) and (iii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares within ninety (90)
days of termination of Continuous Service (or in the case of shares issued upon
exercise of Options after such date of termination, within ninety (90) days
after the date of the exercise) or such longer period as may be agreed to by the
Company and the Participant (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code regarding "qualified small
business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of stock subject to such outstanding Stock Awards. The
Board, the determination of which shall be final, binding and conclusive, shall
make such adjustments.
15.
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(The conversion of any convertible securities of the Company shall not be
treated as a transaction "without receipt of consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then such Stock Awards shall be terminated if not
exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL. In the event of (i) a sale of all or
substantially all of the assets of the Company, (iii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation may assume
any Stock Awards outstanding under the Plan or may substitute similar stock
awards (including an award to acquire for the same consideration paid to the
stockholders in the transaction described in this subsection 11(c)) for those
awards outstanding under the Plan. In the event any surviving corporation or
acquiring corporation does not assume such Stock Awards or substitute similar
stock awards for those outstanding under the Plan, then such Stock Awards shall
terminate if not exercised (if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (iii) the
Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under
16.
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any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Participant and (iii) the Participant
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders-of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon its adoption by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
17.
<PAGE> 1
EXHIBIT 10.58
AXYS ADVANCED TECHNOLOGIES, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to the Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Axys Advanced Technologies, Inc. (the "Company") has
granted you an option under its 1999 Equity Incentive Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in the
Grant Notice at the exercise price indicated in the Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares subject to
your option and your exercise price per share referenced in the Grant Notice may
be adjusted from time to time for Capitalization Adjustments, as provided in the
Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in the
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of this option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;
(b) any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Company's form of Early Exercise Stock
Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as
provided in the Plan, to the extent that the aggregate Fair Market Value
(determined at the time of grant) of stock with respect to which your option
plus all other incentive stock options you hold are exercisable for
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the first time by you during any calendar year (under all plans of the Company
and its Affiliates) exceeds one hundred thousand dollars ($100,000), the options
or portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as nonstatutory stock options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY THE GRANT
NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board which,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock that either have been held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or were not acquired, directly or indirectly from the Company, that are
owned free and clear of any liens, claims, encumbrances or security interests,
and that are valued at Fair Market Value on the date of exercise. "Delivery" for
these purposes, in the sole discretion of the Company at the time your option is
exercised, shall include delivery to the Company of your attestation of
ownership of such shares of Common Stock in a form approved by the Company.
Notwithstanding the foregoing, your option may not be exercised by tender to the
Company of Common Stock to the extent such tender would constitute a violation
of the provisions of any law, regulation or agreement restricting the redemption
of the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.
(ii) Interest shall be compounded at least annually and
shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Code, of any
portion of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(iii) At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.
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<PAGE> 3
(iv) In order to elect the deferred payment alternative,
you must, as a part of your written notice of exercise, give notice of the
election of this payment alternative and, in order to secure the payment of the
deferred exercise price to the Company hereunder, if the Company so requests,
you must tender to the Company a promissory note and a security agreement
covering the purchased shares, both in form and substance satisfactory to the
Company, or such other or additional documentation as the Company may request.
5. WHOLE SHARES. Your option may only be exercised for whole shares.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act. The exercise of your option must also comply with other
applicable laws and regulations governing the option, and the option may not be
exercised if the Company determines that the exercise would not be in material
compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than Disability or death, provided that if during
any part of such three (3) month period the option is not exercisable solely
because of the condition set forth in paragraph 6, the option shall not expire
until the earlier of the Expiration Date or until it shall have been exercisable
for an aggregate period of three (3) months after the termination of your
Continuous Service;
(b) twelve (12) months after the termination of your
Continuous Service due to Disability or death;
(c) the Expiration Date indicated in the Grant Notice; or
(d) the tenth (10th) anniversary of the Date of Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of the option and
ending on the day three (3) months before the date of the option's exercise, you
must be an employee of the Company or an Affiliate, except in the event of your
death or your Disability. The Company has provided for extended exercisability
of your option under certain circumstances for your benefit, but cannot
guarantee that your option will necessarily be treated as an "incentive stock
option" if you provide services to the Company or an Affiliate as a Consultant
or Director or if you exercise your option more than three (3) months after the
date your employment with the Company or an Affiliate terminates.
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<PAGE> 4
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if the Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of your option,
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise, or (3) the disposition of shares acquired upon
such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as. may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which arc necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your Common Stock
until the end of such period.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF FIRST REFUSAL/RIGHT OF REPURCHASE. Vested shares that are
received upon exercise of your option are subject to any right of first refusal
that may be described in the Company's bylaws in effect at such time the Company
elects to exercise its right. The Company's right of first refusal shall expire
on the date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act. In addition, to the extent provided in the
Company's bylaws as amended from time to time, the Company shall have the right
to repurchase all or any part of the shares received pursuant to the exercise of
your option.
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<PAGE> 5
11. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
12. WITHHOLDING OBLIGATIONS.
(a) At the time your option is exercised, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares having a Fair Market Value, determined by the Company as of the
date of exercise, not in excess of the minimum amount of tax required to be
withheld by law. If the date of determination of any tax withholding obligation
is deferred to a date later than the date of exercise of your option, share
withholding pursuant to the preceding sentence shall not be permitted unless you
make a proper and timely election under Section 83(b) of the Code, covering the
aggregate number of shares of Common Stock acquired upon such exercise with
respect to which such determination is otherwise deferred, to accelerate the
determination of such tax withholding obligation to the date of exercise of your
option. Notwithstanding the filing of such election, shares shall be withheld
solely from fully vested shares of Common Stock determined as of the date of
exercise of your option that are otherwise issuable to you upon such exercise.
Any adverse consequences to you arising in connection with such share
withholding procedure shall be your sole responsibility.
(c) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares or release such shares from any escrow provided for herein.
13. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
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<PAGE> 6
14. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
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EXHIBIT 10.65
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered
into this ___ day of May, 2000, between Discovery Partners International, Inc.,
a Delaware corporation ("Corporation"), and Riccardo Pigliucci ("Indemnitee").
A. Indemnitee, as a member of Corporation's Board of Indemnitees
(the "Board")and/or an officer of Corporation, performs valuable services for
Corporation.
B. The stockholders of Corporation have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers, directors, agents
and employees of Corporation to the maximum extent authorized by Section 145 of
the Delaware General Corporation Law, as amended (the "Law").
C. The Bylaws and the Law, as amended and in effect from time to
time or any successor or other statutes of Delaware having similar import and
effect, currently purport to be the controlling law governing Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers.
D. In accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
Indemnitees and Officers Liability Insurance ("D & O Insurance"), covering
certain liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation.
E. As a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board by
such D & O Insurance, if any, and by statutory and bylaw indemnification
provisions.
G. Corporation (i) desires to attract and retain the involvement of
highly qualified individuals, such as Indemnitee, to serve Corporation and (ii)
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
H. In view of the considerations set forth above, Corporation
desires that Indemnitee be indemnified by Corporation as set forth herein.
NOW, THEREFORE, in consideration of Indemnitee's service to Corporation,
the parties hereto agree as follows:
1. Certain Definitions. The following terms used in this Agreement
shall have the meanings set forth below. Other terms are defined where
appropriate in this Agreement.
(a) "Disinterested Director" shall mean a director of
Corporation who is not or was not a party to the Proceeding in respect of which
indemnification is being sought by Indemnitee.
<PAGE> 2
(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
all other disbursements or out-of-pocket expenses and reasonable compensation
for time spent by Indemnitee for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a
determination that Indemnitee is not entitled to indemnification shall have been
made pursuant to Section 5 hereof and either (i) a final adjudication in a
Delaware court or decision of an arbitrator pursuant to Section 12(a) hereof
shall have denied Indemnitee's right to indemnification hereunder, or (ii)
Indemnitee shall have failed to file a complaint in a Delaware court or seek an
arbitrator's award pursuant to Section 12(a) for a period of one hundred twenty
(120) days after the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or
member of a law firm selected by Corporation and approved by Indemnitee (which
approval shall not be unreasonably withheld) and that neither is presently nor
in the past five years has been retained to represent: (i) Corporation, in any
material matter, or (ii) any other party to the Proceeding giving rise to a
claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Legal Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either Corporation or Indemnitee in a
Proceeding to determine Indemnitee's right to indemnification under this
Agreement.
(e) "Liabilities" shall mean liabilities of any type
whatsoever including, but not limited to, any judgments, fines, ERISA excise
taxes and penalties, and penalties and amounts paid in settlement (including all
interest assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties or amounts paid in settlement) of
any Proceeding.
(f) "Proceeding" shall mean any threatened, pending or
completed action, claim, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or any other proceeding whether
civil, criminal, administrative or investigative, including any appeal
therefrom.
(g) "Change of Control" shall mean the occurrence of any of
the following events after the date of this Agreement:
(i) A change in the composition of the Board, as a
result of which fewer than two-thirds (2/3) of the incumbent directors are
directors who either (1) had been directors of Corporation twenty-four (24)
months prior to such change or (2) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the directors who
had been directors of Corporation 24 months prior to such change and who were
still in office at the time of the election or nomination; or
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<PAGE> 3
(ii) Any "person" (as such term is used in section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty percent
(20%) or more of the combined voting power of Corporation's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Capital
Stock"), except that any change in ownership of Corporation's securities by any
person resulting solely from a reduction in the aggregate number of outstanding
shares of Capital Stock shall be disregarded until such person increases in any
manner, directly or indirectly, such person's beneficial ownership of any
securities of Corporation.
2. Indemnity of Indemnitee. Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the provisions of the Law, as may be amended from time to time.
3. Additional Indemnity. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Indemnitee:
(a) against any and all Expenses in connection with any
Proceeding (including an action by or in the right of Corporation) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Indemnitee is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by Corporation under the non-exclusivity provisions of the Bylaws of
Corporation and the Law.
4. Limitations on Additional Indemnity. No indemnity pursuant to
Section 3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Indemnitee
is indemnified pursuant to Section 2 hereof or reimbursed pursuant to any D & O
Insurance purchased and maintained by Corporation;
(b) in respect of remuneration paid to Indemnitee if it shall
be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any Proceeding in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of Corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(d) on account of a Final Adverse Determination that
Indemnitee's conduct was knowingly fraudulent or deliberately dishonest or
constituted willful misconduct;
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<PAGE> 4
(e) provided there has been no Change of Control, on account
of or arising in response to any Proceeding (other than a Proceeding referred to
in Section 10(b) or 12 hereof) initiated by Indemnitee or any of Indemnitee's
affiliates against Corporation or any officer, director or stockholder of
Corporation unless such Proceeding was authorized in the specific case by action
of the Board;
(f) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful; or
(g) on account of any Proceeding to the extent that Indemnitee
is a plaintiff, a counter-complainant or a cross-complainant therein (other than
a Proceeding permitted by Section 4(e) hereof).
5. Procedure for Determination of Entitlement to Indemnification.
(a) Whenever Indemnitee believes that he or she is entitled to
indemnification pursuant to this Agreement, Indemnitee shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Indemnitee to support his or her claim for indemnification. Indemnitee shall
submit his or her claim for indemnification within a reasonable time not to
exceed five years after any judgment, order, settlement, dismissal, arbitration
award, conviction, acceptance of a plea of nolo contendere or its equivalent,
final termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Indemnitee requests indemnification. The
President, Secretary or other appropriate officer shall, promptly upon receipt
of Indemnitee's request for indemnification, advise the Board in writing that
Indemnitee has made such a request. Determination of Indemnitee's entitlement to
indemnification shall be made not later than ninety (90) days after
Corporation's receipt of his or her written request for such indemnification.
(b) The Indemnitee shall be entitled to select the forum in
which Indemnitee's request for indemnification will be heard, which selection
shall be included in the written request for indemnification required in Section
5(a). This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board consisting of Disinterested
Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by
Corporation, another by Indemnitee and the third by the first two arbitrators
selected. If for any reason three arbitrators are not selected within thirty
(30) days after the appointment of the first arbitrator, then selection of
additional arbitrators shall be made by the American Arbitration Association. If
any arbitrator resigns or is unable to serve in such capacity for any reason,
the American Arbitration Association shall select his or her replacement. The
arbitration shall be conducted pursuant to the commercial arbitration rules of
the American Arbitration Association now in effect.
-4-
<PAGE> 5
If Indemnitee fails to make such designation, his or her claim shall be
determined by the forum selected by Corporation.
6. Presumption and Effect of Certain Proceedings. Upon making a
request for indemnification, Indemnitee shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination. The
termination of any Proceeding by judgment, order, settlement, arbitration award
or conviction, or upon a plea of nolo contendere or its equivalent shall not
affect this presumption or, except as may be provided in Section 4 hereof,
establish a presumption with regard to any factual matter relevant to
determining Indemnitee's rights to indemnification hereunder. If the person or
persons so empowered to make a determination pursuant to Section 5(b) hereof
shall have failed to make the requested determination within thirty (30) days
after any judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, or other disposition
or partial disposition of any Proceeding or any other event which could enable
Corporation to determine Indemnitee's entitlement to indemnification, the
requisite determination that Indemnitee is entitled to indemnification shall be
deemed to have been made.
7. Contribution. If the indemnification provided in Sections 2 and 3
is unavailable and may not be paid to Indemnitee for any reason other than those
set forth in Section 4, then in respect of any Proceeding in which Corporation
is or is alleged to be jointly liable with Indemnitee (or would be if joined in
such Proceeding), Corporation shall contribute to the amount of Expenses and
Liabilities paid or payable by Indemnitee in such proportion as is appropriate
to reflect (i) the relative benefits received by Corporation on the one hand and
Indemnitee on the other hand from the transaction from which such Proceeding
arose, and (ii) the relative fault of Corporation on the one hand and of
Indemnitee on the other hand in connection with the events which resulted in
such Expenses and Liabilities, as well as any other relevant equitable
considerations. The relative fault of Corporation on the one hand and of
Indemnitee on the other shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such Expenses and
Liabilities. Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
8. Insurance and Funding. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or
Indemnitee against any Expenses and Liabilities in connection with any
Proceeding to the fullest extent permitted by the Law.
9. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Indemnitee shall be subject
to any possible Proceeding, by reason of the fact that Indemnitee was serving
Corporation or such other entity in any capacity referred to herein.
-5-
<PAGE> 6
10. Notification and Defense of Claim. Promptly after receipt by
Indemnitee of notice of the commencement of any Proceeding, Indemnitee will, if
a claim in respect thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement thereof; but the omission so
to notify Corporation will not relieve it from any liability which it may have
to Indemnitee otherwise than under this Agreement. With respect to any
Proceeding as to which Indemnitee notifies Corporation of the commencement
thereof:
(a) Corporation will be entitled to participate therein at its
own expense;
(b) Except as otherwise provided below, to the extent that it
may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from Corporation to Indemnitee of its
election to assume the defense thereof, Corporation will not be liable to
Indemnitee under this Agreement for any Expenses subsequently incurred by
Indemnitee in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right to
employ his or her own counsel in such Proceeding but the Expenses associated
with the employment of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized by
Corporation, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between Corporation and Indemnitee in the conduct of the
defense of such Proceeding or (iii) Corporation shall not in fact have employed
counsel to assume the defense of such Proceeding, in each of which cases the
Expenses of Indemnitee's separate counsel shall be at the expense of
Corporation. Corporation shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of Corporation or as to which Indemnitee
shall have made the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation
shall not be liable to indemnify Indemnitee under this Agreement for any amounts
paid in settlement of any Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. Corporation shall be permitted to
settle any Proceeding except that it shall not settle any Proceeding in any
manner which would impose any penalty, out-of-pocket liability, or limitation on
Indemnitee without Indemnitee's written consent.
11. Advancement and Repayment of Expenses.
(a) In the event that Indemnitee employs his or her own
counsel pursuant to Section 10(b)(i) through (iii) above, Corporation shall
advance to Indemnitee, prior to any final disposition of any Proceeding any and
all Expenses incurred in investigating or defending any such Proceeding within
ten (10) days after receiving copies of invoices presented to Indemnitee for
such Expenses.
(b) Indemnitee agrees that Indemnitee will reimburse
Corporation for all Expenses paid by Corporation in defending any Proceeding
against Indemnitee in the event and only to the extent that there has been a
Final Adverse Determination that Indemnitee is not entitled, under the
provisions of the Law, the Bylaws, this Agreement or otherwise, to be
indemnified by Corporation for such Expenses.
-6-
<PAGE> 7
12. Remedies of Indemnitee.
(a) In the event that (i) a determination pursuant to Section
5 hereof is made that Indemnitee is not entitled to indemnification, (ii)
advances of Expenses are not made pursuant to this Agreement, (iii) payment has
not been timely made following a determination of entitlement to indemnification
pursuant to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of
this Agreement, Indemnitee shall be entitled to a final adjudication in an
appropriate court of his or her rights. Alternatively, Indemnitee at his or her
option may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the commercial arbitration rules of the American Arbitration
Association now in effect, whose decision is to be made within ninety (90) days
following the filing of the demand for arbitration. The Corporation shall not
oppose Indemnitee's right to seek any such adjudication or arbitration award.
(b) In the event that a determination that Indemnitee is not
entitled to indemnification, in whole or in part, has been made pursuant to
Section 5 hereof, the decision in the judicial proceeding or arbitration
provided in paragraph (a) of this Section 12 shall be made de novo and
Indemnitee shall not be prejudiced by reason of a determination that he or she
is not entitled to indemnification.
(c) If a determination that Indemnitee is entitled to
indemnification has been made pursuant to Section 5 hereof or otherwise pursuant
to the terms of this Agreement, Corporation shall be bound by such determination
in the absence of (i) a misrepresentation of a material fact by Indemnitee or
(ii) a specific finding (which has become final) by an appropriate court that
all or any part of such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 12,
Corporation shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding and enforceable. The
Corporation shall stipulate in any such court or before any such arbitrator that
Corporation is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary.
(e) Expenses reasonably incurred by Indemnitee in connection
with his or her request for indemnification under this Agreement, meeting
enforcement of this Agreement or to recover damages for breach of this Agreement
shall be borne by Corporation.
(f) Corporation and Indemnitee agree herein that a monetary
remedy for breach of this Agreement, at some later date, will be inadequate,
impracticable and difficult to prove, and further agree that such breach would
cause Indemnitee irreparable harm. Accordingly, Corporation and Indemnitee agree
that Indemnitee shall be entitled to temporary and permanent injunctive relief
to enforce this Agreement without the necessity of proving actual damages or
irreparable harm. The Corporation and Indemnitee further agree that Indemnitee
shall be entitled to such injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, without the necessity
of posting bond or other undertaking in connection therewith. Any such
requirement of bond or undertaking is hereby waived by Corporation, and
Corporation acknowledges that in the absence of such a waiver, a bond or
undertaking may be required by the court.
-7-
<PAGE> 8
13. Enforcement. Corporation expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on
Corporation hereby in order to induce Indemnitee to continue as a director of
Corporation, and acknowledges that Indemnitee is relying upon this Agreement in
continuing in such capacity.
14. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable to any
extent for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify Indemnitee to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
15. Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the internal laws of the State of
Delaware.
16. Consent to Jurisdiction. The Corporation and Indemnitee each
irrevocably consent to jurisdiction of the courts of the State of Delaware for
all purposes in connection with any Proceeding which arises out of or relates to
this Agreement and agree that any Proceeding instituted under this Agreement
shall be brought only in the state courts of the State of Delaware.
17. Binding Effect. This Agreement shall be binding upon Indemnitee
and upon Corporation, its successors and assigns, and shall inure to the benefit
of Indemnitee, his or her heirs, executors, administrators, personal
representatives and assigns and to the benefit of Corporation, its successors
and assigns.
18. Entire Agreement. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
19. Amendment and Termination. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
20. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
21. Non-Exclusivity of Rights. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of Corporation's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
-8-
<PAGE> 9
22. Survival of Rights. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of Corporation or such other entity.
23. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Indemnitee or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either party
to the other, and shall be deemed to have been duly given if (a) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (b) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
INDEMNITEE: DISCOVERY PARTNERS
INTERNATIONAL, INC.,
a Delaware corporation
______________________________ By: _______________________________
Its: _______________________________
[SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]
<PAGE> 1
EXHIBIT 10.66
EMPLOYMENT CONTRACT
between
DISCOVERY TECHNOLOGIES AG
Gewerbestrasse 16
4123 Allschwil
(hereinafter referred to as "DTL")
and
DR. HEINRICH ZINSLI
Elblingstr. 10
4142 Munchenstein
(hereinafter referred to as "Employee")
-----------------------------------
WHEREAS, DTL has concluded an Employment Agreement with Dr. H. Zinsli on
February 19, 1999;
WHEREAS, Dr. H. Zinsli is a member of the management board and of the board of
directors;
WHEREAS, DTL desires to appoint Dr. H. Zinsli to the position of CEO.
NOW, THEREFORE, in consideration of the promises and mutual covenants herein set
forth, the parties conclude the following Agreement which overrides the
Employment Agreement dated February 19, 1999:
1. Employment
DTL hereby employs the Employee as CEO.
<PAGE> 2
-2-
2. Duration/Termination
The Agreement shall become effective upon signature of both parties and
shall be valid for a definite period of two (2) years and will terminate on
July 31, 2001. Six months before the ending of the period of the two years,
the parties inform each other if they are prepared to continue the
Agreement.
Upon mutual agreement of both parties the Agreement shall be automatically
extended for an indefinite period until terminated by either party thereto
giving, by registered letter, six months notice at the end of each month.
3. Working Hours/Compensation for Overtime
The Employee shall work 90% to 100% of the normal working hours which are
for a full time position 40 hours a week. The Employee shall devote as much
time, attention and ability as is reasonable to fulfill his duties. Besides
the normal vacation mentioned in the Employment Policies
("Arbeitsreglement") the Employee is entitled to have five days extra for
overtime work. Any compensation for overtime is deemed to be compensated by
granting these extra days for overtime work and therefore, the Employee is
not entitled to additional compensation for overtime.
4. Salary
The gross yearly salary will correspond to CHF 162,110 (in words: hundred
and sixty two thousand one hundred and ten Swiss Francs). The salary shall
be payable in 13 equal monthly installments of gross CHF 12,470 for a full
time position (100%). The Employee's contribution to the Swiss social
security scheme as prescribed by Swiss law and according to the
"Arbeitsreglement" and his contribution to the collective health insurance
(Krankentaggeldversicherung) will be deducted from his salary. The salary
can be adjusted as per January 1 every year taking into consideration DTL's
financial situation, any general price increase, the situation on the labor
market and the individual performance and function of the Employee. The
salary can be adjusted for the first time as per January 1, 2000.
At the end of or during the year DTL may pay a discretionary bonus.
However, previous bonus payments do not set the precedent. The payment and
the amount of this bonus will always remain at the sole and absolute
discretion of DTL.
<PAGE> 3
-3-
5. Other Compensation
DTL pays in addition to the salary the following compensation:
- Bel Etage Insurance of CHF 40,000 annually (risk premium and savings
premium);
- Board of director's fee of gross CHF 24,000 annually as long as he is
a member of the board of directors of DTL. The social contributions as
described by Swiss law are deducted from the board of director's fee:
- General Allowance of CHF 6,000 annually;
- Car allowance: CHF 800 monthly.
6. Non Disclosure of Information
a) The Employee agrees that he will not (except in the performance of his
duties and as an employee of DTL) at any time or in any mariner make or
cause to be made any copies, pictures, duplicates, facsimiles or other
reproductions or recordings of any reports, studies, memoranda,
correspondence, summaries thereof, or other written, printed or otherwise
recorded materials, including but not limited to any magnetically recorded
computer program or data, of any kind whatsoever belonging to or in the
possession of DTL or customers of DTL. The Employee shall have no right,
title or interest in or to any such material, and he agrees that (except in
the performance of his duties as an employee of DTL) he will not, without
DTL's prior written consent, remove any such Material from the premises of
DTL, and that he will surrender all such materials to DTL immediately upon
the termination of his employment with DTL or at any time prior thereto
upon the request of DTL; provided however, that the foregoing does not
apply to any such material not unique to DTL and the customers of DTL or
that is otherwise available to the public other than as a result of his
breach of this Agreement.
b) The Employee covenants and agrees, without any limitation as to time, other
than for purposes of carrying out DTL's duties in furtherance of its
agreements with the customers, that:
- All information obtained by him during the course of performing
services for DTL pursuant to the agreements between DTL and the
customers of DTL shall be kept strictly confidential and he will not
anywhere use for himself, or divulge any confidential or proprietary
information with respect to DTL or any customer, including, but
limited to, their businesses, operations, equipment and products, to
any person, firm, corporation, association or any other entity for any
reason whatsoever;
<PAGE> 4
-4-
- he shall not furnish to or use for the benefit of any person, firm,
corporation, association or any other entity any equipment or material
or make use of any pursuant information received or developed through
any existing and future agreements between DTL and its customers.
7. Other Professional Activities
The Employee is not allowed to pursue any professional activity for his own
personal benefit or on account of a third party, unless he has received the
prior formal consent of DTL.
8. Penalty
In case of violation of any provision in the Employment Agreement or of any
directive of DTL the Employee shall pay a fixed penalty equaling CHF 50,000
(fifty thousand Swiss Francs) for each infringement if he is not able or
willing to provide remedy within a reasonable time as according to DTL.
Notwithstanding payment of the penalty, DTL reserves the right to claim
compensation for losses or damages, provided that such losses or damages
exceed the amount of the penalty. Further, DTL expressly reserves the right
to demand that the infringing activity be terminated immediately.
9. Covenant against Competition
a) Upon termination of this Agreement the Employee will abstain from entering
into competition with DTL for a period of 1 (one) year. This non-compete
clause is valid worldwide except in those jurisdictions where it cannot be
enforced. The Employee will not perform work as an employee, an independent
consultant or contractor for a company engaged in the same field of DTL nor
shall he have share interests in companies working in that field.
b) In case of violation of the above provision, the Employee shall pay DTL a
fixed penalty equaling the last 6 monthly wages (inclusive 13th monthly
installment and bonus payments) for each infringement. Notwithstanding
payment of the penalty, DTL reserves the right to claim compensation for
losses or damages, provided that such losses or damages exceed the amount
of the penalty. Further, DTL expressly reserves the right to demand that
the infringing activity be terminated immediately.
<PAGE> 5
-5-
c) The Covenant against Competition lapses according to Article 340c paragraph
2 of the Swiss Code of Obligations if DTL terminates the Agreement without
a valid reason. However, in the event DTL terminates the Agreement or the
Employee terminates the Agreement for a valid reason for which DTL is
responsible, the Covenant against Competition will continue throughout any
time period that DTL is obliged to continue paying the Employee.
d) The Covenant against Competition in this Agreement will in no event impact
or nullify clause 9, non compete, mentioned in the Voting Share Purchase
Agreement dated August 10, 1999 between Dr. Heinrich Zinsli, Dr. Ernst
Burgisser, Dr. Helmut Kessmann, Christoph Grether and Discovery Partners
International Inc.
10. Miscellaneous
The Employment Policies (Arbeitsreglement) are made a part of this
Agreement.
11. Governing Law
THIS EMPLOYMENT CONTRACT WILL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH
SWISS EMPLOYMENT LAW. VENUE SHALL BE ARLESHEIM.
Allschwil, 10/8/99 Allschwil, Aug 10/99
- --------------------------- ---------------------------------
Place and date Place and date
DISCOVERY TECHNOLOGIES AG, ALLSCHWIL EMPLOYEE
(EMPLOYER)
/s/ illegible /s/ Dr. Heinrich Zinsli
- --------------------------- ---------------------------------
Dr. Heinrich Zinsli
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
IRORI Europe, Ltd. England
Discovery Technology, Ltd. Switzerland
ChemRx Advanced Technologies, Inc. Delaware
Structural Proteomics, Inc. New Jersey
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 10, 2000, except for Note 11, as to which the date
is ____, 2000), in the Registration Statement (Form S-1) and related Prospectus
of Discovery Partners International, Inc. for the registration of shares of its
common stock.
ERNST & YOUNG LLP
San Diego, California
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 11 to the financial
statements.
/s/ ERNST & YOUNG LLP
San Diego, California
May 8, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 7, 2000, with respect to the financial statements
of Axys Advanced Technologies, Inc. in the Registration Statement (Form S-1) and
related Prospectus of Discovery Partners International, Inc. for the
registration of shares of its common stock.
ERNST & YOUNG LLP
Palo Alto, California
May 8, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 2,885 984
<SECURITIES> 0 0
<RECEIVABLES> 2,786 3,082
<ALLOWANCES> 0 0
<INVENTORY> 1,517 2,463
<CURRENT-ASSETS> 7,389 6,894
<PP&E> 5,817 6,789
<DEPRECIATION> (1,162) (1,492)
<TOTAL-ASSETS> 21,652 21,750
<CURRENT-LIABILITIES> 11,052 10,844
<BONDS> 0 0
27,907 27,907
0 0
<COMMON> 2 2
<OTHER-SE> (19,271) (19,563)
<TOTAL-LIABILITY-AND-EQUITY> 21,652 21,750
<SALES> 0 0
<TOTAL-REVENUES> 13,076 5,173
<CGS> 0 0
<TOTAL-COSTS> 8,235 3,053
<OTHER-EXPENSES> 8,288 2,557
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (211) 1,322
<INCOME-PRETAX> (3,370) (1,630)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,370) (1,630)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,370) (1,630)
<EPS-BASIC> (3.00) (1.23)
<EPS-DILUTED> (3.00) (1.23)
</TABLE>
