<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY , 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CLONTECH LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2836 77-0035190
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
1020 EAST MEADOW CIRCLE
PALO ALTO, CALIFORNIA 94303
(650) 424-8222
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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KENNETH S. FONG, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CLONTECH LABORATORIES, INC.
1020 EAST MEADOW CIRCLE
PALO ALTO, CALIFORNIA 94303
(650) 424-8222
(Name, address and telephone number of agent for service)
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COPIES TO:
MATTHEW B. HEMINGTON PATRICK T. SEAVER
MICHAEL L. WEINER CHARLES K. RUCK
COOLEY GODWARD LLP LATHAM & WATKINS
FIVE PALO ALTO SQUARE 650 TOWN CENTER DRIVE, 20(TH) FLOOR
3000 EL CAMINO REAL COSTA MESA, CALIFORNIA 92626
PALO ALTO, CALIFORNIA 94306 (714) 540-1235
(650) 843-5000
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value $73,600,000 $20,461
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
FEBRUARY , 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
Shares
[LOGO]
Common Stock
---------
This is the initial public offering of Clontech Laboratories, Inc. and we are
offering shares of our common stock. The selling stockholders identified
in this prospectus are offering an additional shares of common stock. We
will not receive any of the proceeds from the sale of shares by the selling
stockholders.
We have applied to list our common stock on the Nasdaq National Market under the
symbol "CLON." No public market currently exists for our shares. We anticipate
that the initial public offering price will be between $ and $ per
share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- --------------
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds, before expenses, to Clontech.............................. $ $
Proceeds to the selling stockholders................................ $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER 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.
Clontech and the selling stockholders have granted the underwriters the right to
purchase up to additional shares at the public offering price to cover any
over-allotments.
BT ALEX. BROWN
HAMBRECHT & QUIST
LEHMAN BROTHERS
, 1999
<PAGE>
DESCRIPTION OF PICTURE APPEARING ON FRONT INSIDE COVER PAGE:
Scientist performing an assay using Clontech's ATLAS cDNA array membranes.
Above the picture is a header that reads: "CLONTECH Laboratories, Inc.,
Innovative Tools To Accelerate Discovery"
Below the picture is a caption that reads as follows: "Products & Enabling
Technologies for Life Science Research"
ATLAS, CLONTECH, CLONTECH PCR-SELECT, CLONTECHNIQUES, DELTA, MARATHON,
MARATHON-READY, RETRO-X, SMART and TET-OFF, and our logo are our trademarks.
ADVANTAGE, APOALERT, TET-ON, MTN and LIVING COLORS are registered trademarks of
Clontech.
Information on our web site is not a part of this prospectus. This
prospectus also contains trademarks owned by other companies.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING
STATEMENTS IS SUBJECT TO RISKS AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE
SECTIONS ENTITLED "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" CONTAIN A
DISCUSSION OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES.
CLONTECH LABORATORIES, INC.
We develop, manufacture and market products for life science research. Our
products enable scientists to identify genes, study how cells are regulated by
genes and search for drugs that can treat diseases. We provide a portfolio of
over 1,500 products that allow scientists to perform academic research and drug
discovery more rapidly and effectively. We sell our products primarily to
scientists within government entities, academic institutions and pharmaceutical
and biotechnology companies. In 1998, our total sales were $47.8 million, and,
since 1994, our sales have grown at a 33% compounded annual rate.
Over the past two decades, life science research has experienced significant
technical advances and growth in resources. Industry analysts estimate that
there are over 300,000 scientists worldwide engaged in life science research.
Based on industry estimates, in 1997, the United States market for bioreagents
approached $1.4 billion. We believe that the market for life science research
products will continue to expand due to several factors, including:
- increasing levels of government and commercial funding for life science
research;
- a growing need to identify genes and to analyze their functions based on
new information generated by genome sequencing projects;
- the proliferation of new research initiatives made possible by rapidly
changing molecular biology research techniques; and
- intensifying competition to discover new drug targets and drugs in the
pharmaceutical and biotechnology industries.
We believe that we have assembled one of the broadest portfolios of
molecular biology research tools in our industry. Our products include enabling
technologies, which allow scientists to conduct experiments which would not
otherwise be possible, and innovative research tools, which permit scientists to
achieve results in a more rapid, efficient and reproducible manner. We offer
products that enable scientists to conduct research in the areas of gene
identification, gene expression analysis, functional analysis and target
validation. For example, in the area of gene identification, we offer products
that allow the rapid identification of full-length gene sequences using
extremely small tissue samples. In the area of gene expression analysis, we have
introduced easy-to-use cDNA arrays for obtaining expression patterns for
hundreds of known genes in a single experiment.
3
<PAGE>
We believe that the breadth and quality of our products have allowed us to
establish a leadership position in our industry. We intend to pursue the
following strategies to maintain and expand our leadership position:
- pioneer the commercialization of enabling technologies through:
-- internal research and development,
-- identification and acquisition of new technologies from third parties,
-- conversion of novel technologies into commercially viable research
tools;
- rapidly introduce new technologies and products in an effort to be first
to market;
- enhance and extend our existing product lines;
- offer a broad range of products and technologies to provide our customers
with integrated research solutions;
- provide a high level of technical support and service; and
- recruit, develop and retain outstanding scientists.
Our product portfolio includes many products in which we have a proprietary
interest. As of January 31, 1999, we had six issued United States patents, 42
pending United States patent applications and nine pending foreign patent
applications. Additionally, we have entered into over 50 agreements with
academic, government and commercial entities, which provide us with access to
additional technologies.
We market our products in more than 30 countries through our annual catalog
and CLONTECHNIQUES quarterly newsletter. We employ a domestic sales force of 13
individuals, have three foreign sales and service subsidiaries and utilize a
network of 25 independent foreign distributors. In addition, we maintain a web
site with detailed information about our products, which during the last quarter
of 1998 was visited an average of 32,779 times per month.
Clontech was incorporated in California in March 1984 and reincorporated in
Delaware in October 1998. Our principal offices are located at 1020 East Meadow
Circle, Palo Alto, California 94303. Our telephone number is (650) 424-8222. Our
web site address is www.clontech.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Clontech.................. shares
Common stock offered by the selling
stockholders.................................... shares
Common stock to be outstanding after the
offering........................................ shares(1)
Use of proceeds................................... For retirement of debt, expansion of
manufacturing capacity, expansion of
sales and marketing infrastructure,
working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............ CLON
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the financial data for our business. The
consolidated balance sheet data are presented as of December 31, 1998, and have
been adjusted to reflect the sale of the shares of common stock we
are offering at an assumed public offering price of $ per share (after
deducting estimated underwriting discounts and commissions and estimated
offering expenses) and the application of the estimated net proceeds. See
consolidated financial statements and related notes appearing elsewhere in this
prospectus, "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 15,316 $ 17,351 $ 27,164 $ 36,802 $ 47,811
Gross profit........................................... 12,577 12,404 19,878 25,050 32,866
Operating income....................................... 2,066 1,511 5,372 6,201 6,891
Net income............................................. 1,306 871 3,441 3,673 4,046
Earnings per share(2)..................................
Basic................................................ $ 0.11 $ 0.07 $ 0.29 $ 0.31 $ 0.34
Diluted.............................................. $ 0.11 $ 0.07 $ 0.29 $ 0.30 $ 0.32
Shares used in computing earnings per share
Basic................................................ 12,000 12,000 12,000 12,000 12,000
Diluted.............................................. 12,000 12,000 12,000 12,088 12,543
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- --------------
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents, short-term investments and marketable securities.............. $ 15,534 $
Working capital....................................................................... 18,717
Total assets.......................................................................... 40,063
Long-term debt and notes payable to stockholders...................................... 9,418
Total stockholders' equity............................................................ 17,263
</TABLE>
- --------------------------
(1) Based on the number of shares outstanding on December 31, 1998. Excludes (i)
847,168 shares issuable upon exercise of outstanding options at a weighted
average price of $7.61 per share under the 1997 Equity Incentive Plan and
(ii) 549,824 shares issuable upon exercise of outstanding warrants to
purchase common stock at an exercise price of $9.09 per share. Also excludes
1,517,118 shares reserved for future grants or purchases pursuant to our
1997 Equity Incentive Plan, 1998 Employee Stock Purchase Plan and 1998 Non-
Employee Directors' Stock Purchase Plan. See "Management--Employee Benefit
Plans."
(2) See Note 2 of notes to consolidated financial statements for a description
of the computation of earnings per share and the number of shares used in
computing earnings per share.
--------------------------
UNLESS OTHERWISE SPECIFICALLY STATED, INFORMATION THROUGHOUT THIS PROSPECTUS
(I) DOES NOT TAKE INTO ACCOUNT THE EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, (II) GIVES EFFECT TO A TWO-FOR-THREE REVERSE STOCK SPLIT AND (III) GIVES
EFFECT TO THE AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO AUTHORIZE THE
ISSUANCE OF 10 MILLION SHARES OF PREFERRED STOCK. SEE "DESCRIPTION OF CAPITAL
STOCK."
5
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. THIS COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MAY LOSE PART OR ALL OF
YOUR INVESTMENT.
OUR OPERATING RESULTS MAY FLUCTUATE
Our operating results may vary significantly from quarter to quarter and
from year to year as a result of a variety of factors. These factors include:
- level of demand for our products;
- timing of acquisitions and investments in infrastructure;
- timing of our development and introduction of new products;
- competitive conditions;
- timing and extent of intellectual property litigation;
- exchange rate fluctuations; and
- general economic conditions.
We believe that quarterly comparisons of our financial results may not
necessarily be meaningful and should not be relied upon as an indication of
future performance. Additionally, if our operating results in one or more
quarters do not meet the expectations of securities analysts or others, the
price of our common stock could be materially adversely affected.
Our continued investments in product development and sales and marketing are
significant ongoing expenses. If revenue in a particular period falls short of
expectations, we may not be able to reduce significantly our expenditures for
that period, which would materially adversely affect our operating results for
that period.
Our product development activities often focus on unproven technologies and
undeveloped markets. As a result, we may experience difficulty in forecasting
operating expenditures, and we cannot know when or whether our efforts will
result in commercially successful products. The expenses or losses associated
with these product development activities could materially adversely affect our
operating results.
WE DEPEND ON NEW PRODUCTS FOR GROWTH
Our future success depends on our ability to develop and introduce, on a
timely basis, products that address the evolving needs of scientists. We have
experienced delays in the development, introduction and marketing of products,
and we may experience delays in the future. We cannot assure you that our new
products will meet the requirements of scientists or achieve market acceptance.
If our products fail to achieve market acceptance, we may endure periods of
slower growth. Factors affecting product acceptance include:
- perceived utility by scientists;
- availability and price of competitive products;
- technological changes;
- citations of the product in published research; and
- general trends in life science research.
6
<PAGE>
We believe that customers in our markets display a significant amount of
loyalty to their initial supplier of a particular product. Therefore, it may be
difficult to generate sales to customers who have historically purchased
products from competitors. Further, we believe that there is a significant
competitive advantage in being the first to introduce a new product to market.
Accordingly, we believe that to compete effectively, we consistently need to be
the first to market with important new research products. If we are not the
first to develop and supply new products, our competitive position may suffer.
If we are unable to develop and introduce products in a timely manner, or if our
products do not obtain market acceptance, our business, financial condition and
results of operations could be materially adversely affected.
WE NEED TO EXPAND OUR OPERATIONS AND MANAGE OUR GROWTH
We have recently experienced, and continue to experience, significant growth
in the number of employees and the scope of our operations. This growth places a
significant strain on our management and operations. Our ability to manage
growth effectively will depend upon our ability to:
- attract, hire and retain skilled scientists, managers and other employees;
- increase our international presence and our North American sales force;
- implement and improve our operational, information and financial control
systems;
- expand our manufacturing capabilities; and
- grow our customer service and technical service resources.
Such expansion could result in significant burdens on our systems and
resources. Additionally, because of the lack of available and affordable
facilities, we believe that we may have difficulty expanding our operations in
the Palo Alto area. If we are unable to manage our growth effectively, our
business, financial condition and results of operations could be materially
adversely affected.
WE DEPEND ON PATENTS AND PROPRIETARY TECHNOLOGY
Patent protection for compositions of matter, processes and methods is
prevalent in the life science industry and continues to expand. As more patents
are issued to third parties, we expect that more of these third party patents
will cover aspects of our products. From time to time, we expect to receive
invitations to license patented technology from these parties or be sued for
patent infringement. For example, we are aware of patents and pending
applications held by third parties that may relate to our array technology. We
cannot assure you that we will not infringe these patents or other proprietary
rights belonging to other parties. We may not be able to license certain
technology on acceptable terms, or at all, and, as a result, we may need to
discontinue the sale of certain products or engage in patent litigation. We
currently market products containing several variants of a green fluorescent
protein ("GFP"), which, during 1998, accounted for less than 3% of revenue.
Aurora Biosciences Corporation owns the exclusive rights to patents for certain
aspects of GFP. Our current position with respect to these patents is unclear.
We may find it necessary to discontinue selling our GFP products, license
certain of Aurora's patent rights or participate in patent litigation.
We rely upon a combination of patents and trade secrets to establish and
protect our own proprietary rights to our technologies. As of January 31, 1999,
we owned six issued patents in the United States, had 42 pending patent
applications in the United States and had nine pending foreign patent
applications. We believe that the success of our business, in part, depends on
our ability to obtain and maintain patent protection for our technology.
However, our patent position is generally uncertain. Any patent issued or
licensed to us may not provide protection that has
7
<PAGE>
commercial significance. Our competitors may independently develop technologies
similar to ours, duplicate the technology owned or licensed to us, or design
around patented aspects of our technology. In addition, it may be necessary to
engage in litigation to protect our intellectual property position.
Intellectual property litigation generally is expensive, involves complex
legal and factual questions and requires a significant commitment of
management's time. If we are forced to participate in patent litigation, our
business, financial condition and results of operations could be materially
adversely affected.
In December 1996, we were sued by Life Technologies, Inc. ("LTI") in the
Federal District Court of the Southern District of Maryland. LTI alleges that we
have infringed their patents, induced third parties to infringe their patents,
and violated the terms of a label license. In addition, in December 1998, we
sued LTI in the Federal District Court of the District of Delaware alleging
violation of the patent marking statute and violations of the Delaware Deceptive
Trade Practices Act. We believe that LTI's allegations are without merit. We are
defending ourselves against each allegation and we intend to pursue our suit
against LTI vigorously. However, we cannot predict the outcome of either case,
and, if LTI succeeds in its lawsuit against us, our business may be materially
adversely affected.
We rely upon trade secrets in the development and manufacture of many of our
principal products. We attempt to protect our trade secrets by entering into
confidentiality agreements with all of our employees, consultants and advisors.
However, these agreements cannot prevent the unauthorized use or disclosure of
such trade secrets or know-how. In addition, others may obtain access to or
independently develop similar or equivalent trade secrets or know-how.
WE DEPEND ON LICENSES FROM THIRD PARTIES
We develop many of our products from platform technologies that are licensed
from third parties such as academic institutions, private and public
foundations, and biotechnology companies. We depend, in part, on the patent
rights licensed from third parties with respect to our PCR, array, fluorescence,
gene expression systems and enzyme technologies. Under these license agreements,
we generally pay the licensors up-front fees and royalties. If we fail to
maintain these and other licenses, our rights to such technology and our
business could be materially adversely affected. Our future success depends, in
part, on our ability to license new technologies on a timely basis. We may not
be able to successfully identify new technologies developed by others. In
addition, in order to avoid patent infringement litigation, we may be required
to license certain technology rights. We may not be able to negotiate license
agreements on favorable terms.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE
The market for our products is highly competitive, and we expect competition
to increase. We compete with many other life science research product suppliers.
We have significantly fewer research and development, marketing, financial and
other resources than many of our competitors. These competitors may have
developed or could in the future develop new technologies that compete with our
products or render our products obsolete. The principal competitive factors in
our market include the following:
- product performance, features and reliability;
- price;
- timing of product introduction;
- sales and distribution capability;
8
<PAGE>
- technical support and service; and
- breadth of product line.
There are few barriers to entry into our market, and new competitors
frequently enter our market. In particular, we are likely to encounter increased
competition as we introduce products into the target validation market. We
currently benefit from sales in emerging niche research markets, which, as they
expand, may also attract the attention of our competitors. We cannot accurately
predict how competitive pressures will affect our business.
Certain of our academic and commercial customers have developed purchasing
initiatives to reduce their number of vendors in order to lower their supply
costs. In some cases, these accounts have established preferred purchase
agreements with large distributors, which include discounts. Some of our
competitors have in the past and may in the future compete by lowering prices on
certain products. In certain cases, we may respond by lowering our prices. In
addition, if we fail to anticipate, recognize and implement new marketing and
distribution strategies based upon the Internet or other marketing trends, our
business may be materially adversely affected.
THERE ARE MANY RISKS RELATING TO INTERNATIONAL SALES AND OPERATIONS
During 1998, sales to customers outside North America accounted for
approximately 36% of our revenue, the majority of which was to customers in
Europe and Asia. We expect that international sales will continue to account for
a significant and increasing percentage of our revenues for the foreseeable
future, in part because we intend to expand our international operations.
However, foreign markets for our products may develop more slowly than we
currently anticipate. Our international sales are subject to a number of risks,
including the following:
- foreign currency devaluation and fluctuation in exchange rates;
- difficulties and costs associated with staffing and managing foreign
operations;
- unexpected changes or difficulties in compliance with legislative or
regulatory requirements;
- delays resulting from difficulty in obtaining export and import licenses
for certain technology;
- delays in collecting accounts receivable;
- tariffs, quotas and other trade restrictions;
- limited protection for intellectual property rights in some countries;
- potential increased costs associated with overlapping tax structures; and
- general economic and political conditions.
We have established international subsidiaries to replace distributor
relationships in Japan, Germany and the United Kingdom. As we opened such
subsidiaries, we incurred significant start-up costs. Future openings of new
international offices, if any, and the accompanying increase in our sales force
would result in additional expenses and burdens on our systems and resources.
Our international direct sales force may not be able to compete successfully
against local competitors or established international distributors that
represent the products of competing companies.
WE RELY ON RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT RESEARCH FUNDING
Our customers include scientists at pharmaceutical and biotechnology
companies, academic institutions and government laboratories. Fluctuations in
the research and development budgets of these companies and institutions may
have a significant effect on the demand for our products. Research and
development budgets fluctuate due to changes in available resources, spending
9
<PAGE>
priorities, institutional budgetary policies and other factors outside of our
control. The funding associated with grants from government agencies, including
the United States National Institutes of Health, generally becomes available at
particular times of the year, the timing of which may result in fluctuations in
our operating results. In the past, grants have been frozen for extended periods
or have otherwise become unavailable to various institutions, sometimes without
advance notice. Any decrease in life science research and development
expenditures or availability of government funding could materially adversely
affect our business.
WE DEPEND ON KEY PERSONNEL AND NEED ADDITIONAL PERSONNEL
We are highly dependent upon our ability to attract and retain certain key
managerial, scientific, and technical personnel. We compete for such personnel
with academic institutions, pharmaceutical companies and our competitors, among
others. In addition, our success depends on our ability to hire qualified
marketing and sales personnel. We intend to increase our North American sales
force to over 25 individuals by mid-2000. The loss of key personnel or the
inability to hire and retain qualified personnel could materially adversely
affect our product development efforts and our business.
WE DEPEND ON KEY SUPPLIERS
We purchase certain key raw materials, including RNA, from a limited number
of suppliers, some of whom are located overseas. We believe there are relatively
few alternative sources of supply for certain of these raw materials. Although
we maintain significant inventories, if our current suppliers become unable or
unwilling to supply raw materials when needed and we are unable to obtain
alternative suppliers, we may be unable to manufacture and market certain
products. Resulting delays or reductions in product shipments could damage
relationships with our customers. Further, a significant increase in the price
of one or more of these raw materials by our suppliers could materially
adversely affect our gross margin or operating results.
WE ARE CONTROLLED BY CERTAIN STOCKHOLDERS AND MANAGEMENT
Following this offering, our founders, directors and executive officers and
their affiliates will beneficially own approximately % of the outstanding
shares of common stock ( % if the underwriters' over-allotment option is
exercised in full) and Kenneth S. Fong, Ph.D. and Pamela P. Fong, O.D. will
beneficially own approximately % of the outstanding shares of common stock
( % if the underwriters' over-allotment option is exercised). These
stockholders, if acting together, will be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions. Such control could have the effect of delaying or preventing a
change in control and may make some transactions difficult or impossible without
the support of these stockholders.
WE ARE NOT YET YEAR 2000 COMPLIANT
Many currently installed computer systems are not capable of distinguishing
21(st) century dates from 20(th) century dates. As a result, in less than one
year, computer systems and software used by many companies will experience
operating difficulties unless they are modified or upgraded to adequately
process information involving the century change.
We are heavily dependent upon the proper functioning of our own computer and
data-dependent systems. This includes, but is not limited to, systems used by
our finance, operations, manufacturing and service departments. In addition, we
are dependent on our vendors and suppliers, who utilize computer systems and
software in their operations. Any failure or
10
<PAGE>
malfunctioning on the part of these or other systems could materially adversely
affect our business in ways we cannot anticipate.
We cannot assure you that we will successfully identify and address all Year
2000 issues. Even if we act in a timely manner to complete all of our
assessments, identify, develop and implement remediation plans believed to be
adequate, some problems may not be identified or corrected in time to prevent
material adverse consequences to our business.
OUR STOCK PRICE MAY FLUCTUATE AND THE MARKET FOR OUR STOCK MAY BE VOLATILE
We cannot predict whether an active trading market will develop for our
common stock. The initial public offering price for the shares was determined by
negotiations between Clontech and the representatives of the underwriters and
may not be indicative of prices that will prevail in the trading market. The
stock market has experienced significant price and volume fluctuations, and the
market prices of securities of life science and biotechnology companies have
been highly volatile. Investors may not be able to resell their shares at or
above the initial public offering price. See "Underwriting."
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of our management's attention and resources.
OUR BUSINESS USES HAZARDOUS MATERIALS AND SUBJECTS US TO ENVIRONMENTAL LAWS AND
REGULATIONS
Our research and development activities involve the controlled use of
hazardous materials, chemicals and radioactive compounds. We believe that we are
in compliance in all material respects with applicable federal, state and local
laws and regulations governing the storage, use, and disposal of such materials
and certain waste products. However, our safety procedures for handling and
disposing of hazardous materials may not fully comply with these standards. In
the future, regulators may require us to incur significant costs to comply with
environmental laws and regulations. In addition, our employees may be
accidentally contaminated or injured from these materials. In the event of such
an accident, we could be held liable for any damages that result.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT
MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US
Certain provisions of our certificate of incorporation and bylaws may make
it more difficult for a third party to acquire us, even if a change of control
would be beneficial to our stockholders. These provisions include the inability
of stockholders to act by written consent without a meeting, limits on the
ability to remove directors and certain procedures required for director
nominations and stockholder proposals. In addition, certain provisions of
Delaware law may also delay or make more difficult a merger, tender offer or
proxy contest. The Board of Directors is authorized to issue up to 10,000,000
shares of preferred stock and to determine the preferences, rights and
privileges of those shares without any further votes or actions by the
stockholders. The rights of the holders of common stock may be materially
adversely affected by the rights of the holders of any preferred stock that may
be issued. As a result, the issuance of preferred stock could decrease the
market value of our common stock.
FUTURE SALES OF SHARES MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
The market price of our common stock could drop as a result of sales of a
large number of shares in the market after this offering or in response to the
perception that such sales could occur. All of the shares sold in this
offering will be freely tradable, while the 12,543,874 other
11
<PAGE>
shares outstanding after this offering (including 542,967 shares issuable upon
exercise of outstanding warrants) will be "restricted securities" as defined in
Rule 144 ("Rule 144") of the Securities Act of 1933, as amended (the "Securities
Act"). All of these restricted securities will be subject to 180-day lock-up
agreements. After expiration of the lock-up period, all of such shares will be
eligible for immediate sale, and in certain instances subject to the volume
limitations of Rule 144. BT Alex. Brown can release shares from one or more of
the lock-up agreements without our approval. After the lock-up agreements
expire, the holders of 3,560,109 shares of common stock have the right to
request that we register those shares for sale in the public market. In
addition, we intend to file a registration statement on Form S-8 with respect to
an aggregate of 1,913,379 shares of common stock issuable upon exercise of
options under our option plans and 450,000 shares reserved for purchase under
our 1998 Employee Stock Purchase Plan.
MANAGEMENT HAS BROAD DISCRETION OVER THE PROCEEDS OF THE OFFERING
Assuming an offering price of $ per share, we will receive approximately
$ million from the sale of the shares of common stock we are offering. We
expect to use approximately $10.4 million for the retirement of debt,
approximately $5.0 million for the expansion of manufacturing capacity, and
approximately $4.0 million for the expansion of marketing and sales
infrastructure. Although we have allocated the proceeds of the offering to
specific uses, our management and Board of Directors have the discretion to
change these allocations. The balance of the proceeds will be used for working
capital and general corporate purposes. We currently have no specific plans for
this balance. We may not be able to yield a significant return on any investment
of the proceeds.
YOU WILL EXPERIENCE IMMEDIATE DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE
COMMON STOCK YOU PURCHASE
Purchasers of our common stock will incur immediate dilution of $ per
share in the net tangible book value of our common stock from the assumed
initial public offering price of $ a share. Additional dilution will occur
upon the exercise of options and warrants.
12
<PAGE>
USE OF PROCEEDS
We estimate that net proceeds from the sale of shares of common stock
that we are offering will be $ million. If the underwriters' over-allotment
option is exercised in full, we estimate that the net proceeds will be
approximately $ million. We have assumed an initial public offering price of
$ per share after deducting estimated underwriters' discounts and
commissions and estimated offering expenses.
We anticipate using approximately $6.5 million of the net proceeds from this
offering to retire our 12% Subordinated Notes held by stockholders,
approximately $5.0 million for expansion of manufacturing capacity,
approximately $4.0 million for expansion of marketing and sales infrastructure
and approximately $3.9 million to retire other long-term indebtedness. However,
these allocations are estimates and we will retain broad discretion over the use
of the net proceeds of this offering. We intend to use the balance of the net
proceeds for working capital and general corporate purposes. The amounts and
timing of the expenditures for these purposes may vary significantly depending
on numerous factors, such as the progress of our research and development
efforts, technological advances and the competitive environment for our
products. We may also use a portion of the net proceeds to acquire or invest in
complementary businesses, products and technologies. We are not currently
planning any acquisition and no portion of the net proceeds have been allocated
for any specific acquisition.
We believe that our available cash, together with the net proceeds of this
offering, will be sufficient to meet our capital requirements for the
foreseeable future. Pending use of the net proceeds, we intend to invest the net
proceeds in short-term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock. We intend to retain
earnings for use in the operation and expansion of our business, and therefore
do not anticipate paying any cash dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998,
(i) on an actual basis and (ii) as adjusted to give effect to the sale of
shares of common stock we are offering at an assumed initial public
offering price of $ per share (after deducting estimated
underwriting discounts and commissions and our estimated offering expenses) and
the application of the estimated net proceeds. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and notes payable to stockholders........................................ $ 9,418 $
Stockholders' equity
Preferred stock, $0.001 par value; no shares authorized, no shares issued and
outstanding actual; 10,000,000 shares authorized, no shares issued and outstanding
as adjusted......................................................................... -- --
Common stock, $0.001 par value; 50,000,000 shares authorized, 12,000,000 shares issued
and outstanding actual; 50,000,000 shares authorized, shares issued and
outstanding as adjusted(1).......................................................... 1
Additional paid-in capital............................................................ 959
Accumulated other comprehensive income................................................ 28
Deferred stock compensation........................................................... (413)
Retained earnings..................................................................... 16,688
--------- ------------
Total stockholders' equity........................................................ 17,263
--------- ------------
Total capitalization........................................................... $ 26,681 $
--------- ------------
--------- ------------
</TABLE>
------------------------
- ------------------------
(1) Based on the number of shares outstanding on December 31, 1998. Excludes (i)
847,168 shares issuable upon exercise of outstanding options at a weighted
average price of $7.61 per share under the 1997 Equity Incentive Plan and
(ii) 549,824 shares issuable upon exercise of outstanding warrants to
purchase common stock at an exercise price of $9.09 per share. Also excludes
1,517,118 shares reserved for future grants or purchases pursuant to our
1997 Equity Incentive Plan, 1998 Employee Stock Purchase Plan and 1998
Non-Employee Director's Stock Purchase Plan. See "Management--Employee
Benefit Plans."
14
<PAGE>
DILUTION
The net tangible book value of Clontech, as of December 31, 1998, was $17.3
million, or $1.44 per share of common stock. Net tangible book value per share
represents the amount of total tangible assets less total liabilities divided by
the number of shares of common stock outstanding at that date. After giving
effect to the sale by Clontech of the shares of common stock being
offered hereby at an assumed initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of
December 31, 1998, would have been $ million or $ per share.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution of $
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $
Net tangible book value per share at December 31, 1998............... $ 1.44
Increase per share attributable to new investors.....................
---------
Pro forma net tangible book value per share after this offering........
---------
Dilution per share to new investors.................................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1998, the differences between the number of shares of common stock purchased
from Clontech, the total consideration paid and the average price per share paid
by existing stockholders and by the new investors purchasing shares in this
offering (at an assumed initial public offering price of $ per share and
before deducting estimated underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............... 12,000,000 % $ 1,000 % $ 0.0001
New investors..........................
---------- ----- ----------- -----
Total.............................. 100.0% $ 100.0%
---------- ----- ----------- -----
---------- ----- ----------- -----
</TABLE>
- ------------------------
(1) Sales by the selling stockholders in this offering will reduce the number of
shares of common stock held by existing stockholders to shares,
or % of the shares of common stock outstanding, and will increase the
number of shares to be purchased by new investors to , or
approximately % of the total number of shares of common stock
outstanding after this offering (approximately % if the underwriters'
over-allotment option is exercised in full). See "Principal and Selling
Stockholders."
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants. As of December 31, 1998, there were outstanding (i)
options to purchase 847,168 shares of common stock, at a weighted average
exercise price of $7.61 per share and (ii) warrants to purchase 549,824 shares
of common stock at an exercise price of $9.09 per share. In addition, as of
December 31, 1998, there were an aggregate of 1,517,118 shares reserved for
future grants or purchases pursuant to our 1997 Equity Incentive Plan, 1998
Employee Stock Purchase Plan and 1998 Non-Employee Directors' Stock Option Plan.
To the extent that any shares reserved for issuance under our stock plans or the
warrants are issued, there will be further dilution to new investors. See
"Capitalization," "Management--Employee Benefit Plans" and Note 12 of notes to
consolidated financial statements.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Clontech's consolidated financial statements and related notes
included elsewhere in this prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein. The
consolidated statement of operations data for the years ended December 31, 1996,
1997 and 1998, and the consolidated balance sheet data as of December 31, 1997
and 1998, are derived from the audited consolidated financial statements
included elsewhere in this prospectus. The consolidated balance sheet data as of
December 31, 1995 and 1996, and the consolidated statement of operations data
for the year ended December 31, 1995, are derived from audited consolidated
financial statements not included herein. The consolidated statement of
operations data and consolidated balance sheet data as of and for the year ended
December 31, 1994, is derived from audited consolidated financial statements not
included herein. The 1994 audited consolidated financial statements were audited
by a predecessor auditor whose report contains a qualification concerning the
fact that it did not observe the physical inventory at December 31, 1994. The
historical results are not necessarily indicative of results to be expected for
future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 15,316 $ 17,351 $ 27,164 $ 36,802 $ 47,811
Cost of revenues............................................ 2,739 4,947 7,286 11,752 14,945
--------- --------- --------- --------- ---------
Gross profit.............................................. 12,577 12,404 19,878 25,050 32,866
--------- --------- --------- --------- ---------
Operating expenses
Research and development.................................. 1,416 4,483 3,684 5,085 7,014
Selling, general and administrative....................... 9,095 6,410 10,822 13,764 18,961
--------- --------- --------- --------- ---------
Total operating expenses.................................... 10,511 10,893 14,506 18,849 25,975
--------- --------- --------- --------- ---------
Operating income............................................ 2,066 1,511 5,372 6,201 6,891
Interest and other income (expense), net.................. 19 (19) 171 (162) (261)
--------- --------- --------- --------- ---------
Income before provision for income taxes.................... 2,085 1,492 5,543 6,039 6,630
Provision for income taxes.................................. 779 621 2,102 2,366 2,584
--------- --------- --------- --------- ---------
Net income.................................................. $ 1,306 $ 871 $ 3,441 $ 3,673 $ 4,046
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share(1)
Basic..................................................... $ 0.11 $ 0.07 $ 0.29 $ 0.31 $ 0.34
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................... $ 0.11 $ 0.07 $ 0.29 $ 0.30 $ 0.32
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing earnings per share
Basic..................................................... 12,000 12,000 12,000 12,000 12,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................... 12,000 12,000 12,000 12,088 12,543
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, short-term investments and marketable
securities.................................................. $ 1,746 $ 3,088 $ 5,147 $ 11,859 $ 15,534
Working capital............................................... 3,315 4,512 6,761 13,341 18,717
Total assets.................................................. 7,101 10,699 16,580 31,038 40,063
Long-term debt and notes payable to stockholders.............. 286 2,324 1,920 8,067 9,418
Total stockholders' equity.................................... 4,616 5,529 8,949 13,111 17,263
</TABLE>
- --------------------------
(1) See Note 2 of notes to consolidated financial statements for a description
of the computation of earnings per share and the number of shares used in
computing earnings per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, THAT REFLECT OUR PLANS
AND ESTIMATED BELIEFS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES, INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN
THIS PROSPECTUS, PARTICULARLY IN "RISK FACTORS."
OVERVIEW
We develop, manufacture and market products that allow scientists to conduct
gene-based drug discovery and other essential molecular biology research
efficiently and reliably. Since Clontech's inception in 1984, we have grown
rapidly and have assembled a portfolio of approximately 1,500 products. Since
1994, our revenues have grown at a compounded annual rate of 33%. We rely on new
product introductions for a significant portion of our growth. In 1998, new
products introduced in that year generated $4.7 million, or 9.8%, of revenues.
In 1997, new products introduced in that year generated $2.8 million, or 7.6%,
of revenues.
We manufacture the majority of our products at our facility in Mountain
View, California. The vast majority of our products are shipped the same day
that orders are received. In order to meet the same day shipment policy, we
maintain relatively high levels of inventory. We have never had and do not
anticipate having a significant backlog.
International revenues accounted for 36% of consolidated revenues in 1998,
and we expect international revenues to grow at a higher rate than our North
American revenues in the next several years. Our international customers are
serviced through a combination of our subsidiaries in Japan, Germany and the
United Kingdom, our 25 distributors and direct shipments from the United States.
As we have opened our foreign sales, service and distribution subsidiaries, we
have incurred significant start-up costs. In the future, where appropriate, we
may shift from third party distribution to direct sales on a country-by-country
basis.
The markets for our products are characterized by rapid technological change
and frequent new product introductions. Our continued investment in product
development is a significant ongoing expense, and we often focus on unproven
technologies and undeveloped markets. As a result, we may experience difficulty
in forecasting operating expenditures, and we cannot know whether such efforts
will result in commercially successful products. We expect that our research and
development spending in absolute terms and as a percentage of revenue will
continue to increase as the number of new products under development increases
and our product development cycles lengthen.
Patent litigation is prevalent in the life science industry, and, as more
patents are issued, we expect that we may be sued by third parties alleging
infringement of their patents. Such litigation will result in the diversion of
management's time and effort and will result in increased legal expenses. For
example, in December 1996, we were sued by Life Technologies, Inc. ("LTI").
Expenses related to the LTI litigation have fluctuated significantly over the
periods presented, depending on the level of activity in pursuing the
litigation. See "Business--Legal Proceedings."
To support our historical and future growth, we have made and expect to
continue to make investments in research and development, North American and
international sales and service infrastructure and additional manufacturing
capability. The expenses associated with these investments may reduce future
operating results. We anticipate that results of operations may fluctuate due to
several factors, including changes in research budgets and demand for our
products, our ability to introduce new products successfully, competitive
product introductions,
17
<PAGE>
continued market acceptance of existing products, our ability to manufacture our
products efficiently and our ability to control or adjust operating expenses in
response to changes in revenues. In addition, results of operations could be
affected by the timing of orders from distributors and the mix of sales among
distributors and our direct sales force and between North American and
international customers. In addition, our quarterly revenue may vary depending
upon the level of activity under, and the completion of, contract research and
development agreements. In the past, we have incurred significant expenses
related to defending and enforcing our proprietary intellectual property
positions, and we expect to continue to incur such expenses in the future.
Although we have experienced growth in recent years, we cannot assure you that,
in the future, we will sustain revenue growth or remain profitable on a
quarterly or annual basis or that growth will be consistent with predictions
made by securities analysts.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Our revenues were $47.8 million for the year ended December 31,
1998, an increase of 30% over revenues of $36.8 million for the year ended
December 31, 1997. This increase in revenues was attributable in part to
revenues from new products introduced in 1998, which generated $4.7 million in
sales. In addition, in 1998, we increased the size of our North American direct
sales force, which further increased our sales. In the first half of 1998, we
established subsidiaries in Japan and the United Kingdom, two of our largest
international markets, to replace exclusive distributors in these markets. Our
revenues in Japan and the United Kingdom increased due to higher average selling
prices as well as more focused sales efforts in those countries. We expect that
future revenues will depend on our ability to successfully introduce new
products, the availability of new technologies to license, our ability to expand
our customer base, the continued funding of academic, government and corporate
life science research budgets and competitive conditions in the marketplace.
COST OF REVENUES. Our cost of revenues was $14.9 million for the year ended
December 31, 1998, an increase of 27% over cost of revenues of $11.8 million for
the year ended December 31, 1997. Our gross margin was 69% for the year ended
December 31, 1998, and 68% for the year ended December 31, 1997. This increase
in gross margin was primarily due to the change to direct sales in Japan and the
United Kingdom, where our products have higher average selling prices. This
increase was partially offset by an increase in overhead costs related to the
expansion of our manufacturing facilities at the end of 1997. We intend to
increase our licensing of new technologies in future periods, which would result
in higher royalty payments and could lower gross margins. Other factors most
likely to affect our gross margins in future periods include the North American
and international sales mix, competitive conditions and foreign exchange rates.
RESEARCH AND DEVELOPMENT. Our research and development expenses were $7.0
million for the year ended December 31, 1998, an increase of 38% over research
and development expenses of $5.1 million for the year ended December 31, 1997.
These expenses were 15% of revenues for the year ended December 31, 1998, and
14% of revenues for the year ended December 31, 1997. This increase in research
and development spending in absolute terms and as a percentage of revenue was
due to an increase in the number of new products under development. In addition,
in 1998, we focused on technologies that have a longer product development
cycle. Research and development spending consists primarily of personnel
expenses, material costs and licensing. We expect to increase our licensing of
new technologies in the future, which may result in higher research and
development spending related to up-front license fees and the commercialization
of these technologies.
18
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Our selling, general and
administrative expenses were $19.0 million for the year ended December 31, 1998,
an increase of 38% over selling, general and administrative expenses of $13.8
million for the year ended December 31, 1997. These expenses were 40% of
revenues for the year ended December 31, 1998, and 37% of revenues for the year
ended December 31, 1997. This increase is due primarily to the increased costs
of defending the patent infringement dispute with LTI. In the first half of
1998, establishment of our subsidiaries in Japan and the United Kingdom
increased selling and administrative costs in these countries. Additionally, in
1998, the expansion of our North American direct sales force increased selling
and administrative costs. We expect that general and administrative costs in
future periods will increase in absolute terms due in part to the additional
expenses related to being a public company.
INTEREST AND OTHER INCOME (EXPENSE), NET. Net interest and other expense
was $261,000 for the year ended December 31, 1998, and $162,000 for the year
ended December 31, 1997. In 1998, interest expense was $1.1 million, comprised
primarily of interest relating to the issuance of 12% Subordinated Notes to
stockholders in late 1997. This interest expense was partially offset by
interest income on cash and cash equivalent balances and foreign exchange gains.
In 1997, interest expense was $455,000, comprised primarily of interest relating
to term loans used to finance leasehold improvements. This interest expense was
partially offset by $315,000 in interest income on cash and cash equivalent
balances.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Our revenues were $36.8 million for the year ended December 31,
1997, an increase of 35% over revenues of $27.2 million for the year ended
December 31, 1996. This increase in revenue related primarily to an increase in
the size of the North American sales force and introduction of new products in
1997, which generated $2.8 million in sales.
COST OF REVENUES. Our cost of revenues was $11.8 million for the year ended
December 31, 1997, an increase of 61% over the cost of revenues of $7.3 million
for the year ended December 31, 1996. Gross margin was 68% for the year ended
December 31, 1997, and 73% for the year ended December 31, 1996. Gross margin
decreased in part because our product mix shifted towards products with higher
royalty rates. Additionally, in 1997, we added a new manufacturing facility and
incurred related personnel, equipment and moving expenses.
RESEARCH AND DEVELOPMENT. Our research and development expenses were $5.1
million for the year ended December 31, 1997, an increase of 38% over research
and development expenses of $3.7 million for the year ended December 31, 1996.
These expenses were relatively constant at 14% of revenues for the years ended
December 31, 1997 and 1996. This increase in absolute terms was primarily due to
an increase in personnel to support new research and development initiatives.
SELLING, GENERAL AND ADMINISTRATIVE. Our selling, general and
administrative expenses were $13.8 million for the year ended December 31, 1997,
an increase of 27% over selling, general and administrative expenses of $10.8
million for the year ended December 31, 1996. These expenses were 37% of
revenues for the year ended December 31, 1997, and 40% for the year ended
December 31, 1996. This increase in absolute terms was primarily due to
increased spending in marketing and sales to support existing and new product
sales growth. Also, expenses associated with establishing operations in the
United Kingdom were incurred in late 1997. The costs of defending the LTI
lawsuit increased in 1997 compared to 1996.
INTEREST AND OTHER INCOME (EXPENSE), NET. Net interest and other expense
was $162,000 for the year ended December 31, 1997, compared to net interest and
other income of $171,000 for the year ended December 31, 1996. In 1997, interest
expense was $455,000, comprised primarily of interest relating to term loans
used to finance leasehold improvements. This interest expense was
19
<PAGE>
partially offset by $315,000 in interest income on cash and cash equivalent
balances. In 1996, interest and other income was $390,000, consisting of
interest income on cash and cash equivalent balances and other income. This
interest income was partially offset by $219,000 in interest expense relating to
term loans used to finance leasehold improvements.
QUARTERLY RESULTS OF OPERATIONS
The following table represents quarterly operating results for each of the
last eight quarters. This information has been derived from unaudited financial
statements and has been prepared on the same basis as our audited financial
statements, which appear elsewhere in this prospectus. In our opinion, this
information reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information in accordance
with generally accepted accounting principles. The operating results for any
quarter are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
----------- ----------- ----------- ----------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 8,283 $ 9,147 $ 9,803 $ 9,569 $ 11,505 $ 10,635 $ 12,890 $ 12,781
Cost of revenues................... 2,765 2,816 3,125 3,046 3,807 3,444 3,922 3,772
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Gross profit..................... 5,518 6,331 6,678 6,523 7,698 7,191 8,968 9,009
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Operating expenses:
Research and development......... 1,131 1,233 1,349 1,372 1,280 1,633 1,934 2,167
Selling, general and
administrative................. 3,062 3,358 3,414 3,930 4,360 4,310 4,875 5,416
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Total operating expenses........... 4,193 4,591 4,763 5,302 5,640 5,943 6,809 7,583
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Operating income................... 1,325 1,740 1,915 1,221 2,058 1,248 2,159 1,426
Interest and other income
(expense), net................... 2 25 (73) (116) (101) (139) (155) 134
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Income before provision for income
taxes............................ 1,327 1,765 1,842 1,105 1,957 1,109 2,004 1,560
Provision for income taxes......... 522 695 719 430 746 438 787 613
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Net income......................... $ 805 $ 1,070 $ 1,123 $ 675 $ 1,211 $ 671 $ 1,217 $ 947
----------- ----------- ----------- ----------- --------- --------- --------- ---------
----------- ----------- ----------- ----------- --------- --------- --------- ---------
</TABLE>
REVENUES. Our revenues have generally increased from quarter to quarter
over the periods presented. These increases have resulted primarily from growth
in the North American sales force, the introduction of new products and
switching in certain markets from distributorships to direct sales and service
subsidiaries. As a result of a change in our Japanese distributor agreement,
which became effective April 1, 1998, we discontinued our practice of
recognizing revenue upon the shipment of product by our subsidiary to our
distributor and began to recognize revenue only after our distributor shipped
product to its customers. Our revenues were lower in the quarter ended June 30,
1998, as our distributor sold through its inventory of products upon which we
had previously recorded revenue. Additionally, our business generally
experiences a pattern of seasonality with somewhat lower revenues in the fourth
quarter of each year compared to prior quarters due to reduced selling days in
November and December.
COST OF REVENUES. Our cost of revenues has fluctuated with sales over the
periods presented. Gross margins have increased from 67% in the first quarter of
1997 to 70% in the fourth quarter of 1998. This increase was due primarily to a
change to direct sales in Japan and the United Kingdom and was partially offset
by an increase in overhead costs related to expansion of our manufacturing
facilities at the end of 1997.
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RESEARCH AND DEVELOPMENT. Our research and development expenses have
generally increased over the periods presented. This increase is primarily a
result of an increased number of new research and development personnel to
support products under development, as well as an increase in the length of
product development cycles.
SELLING, GENERAL AND ADMINISTRATIVE. Our selling, general and
administrative expenses have increased in absolute terms over the periods
presented as our infrastructure has expanded to support our higher levels of
sales. As a percentage of revenues, our selling, general and administrative
expenses have fluctuated on a quarterly basis. In the quarters ended December
31, 1997, and March 31, 1998, we incurred start-up costs related to the
establishment of new subsidiaries in Japan and the United Kingdom. Additionally,
expenses related to the LTI litigation have fluctuated significantly over the
periods presented depending on the level of activity in pursuing the litigation.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net has fluctuated over the periods presented primarily due to the
timing and magnitude of borrowings, offset by changes in our balance of cash and
cash equivalents. In September 1997, we issued $6.0 million of 12% Subordinated
Notes, which resulted in an increase in interest expense. We periodically
experience foreign currency gains and losses.
INCOME TAXES
In 1998, 1997 and 1996, our effective tax rates were 39%, 39% and 38%,
respectively, and were below the combined federal and state statutory rate of
40% primarily due to research and development tax credits and foreign sales
corporation benefits. These tax credits have been authorized by the United
States Congress on a year-by-year basis, and we have no assurance they will be
available in future years.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through cash
generated from operations. As of December 31, 1998, we had raised $6.0 million,
net of issuance costs, from the private sale of debt and equity securities. At
December 31, 1998, we had $13.3 million in cash and cash equivalents, and an
aggregate of $6.6 million available under three lines of credit. Through
December 31, 1998, there had been no borrowings under these lines of credit. Two
lines of credit with aggregate available borrowings of $6.0 million expire on
May 31, 1999 (the "Domestic Lines"). The third line of credit is a 65.0 million
yen revolving loan (approximately $573,000 at December 31, 1998) and expires on
July 31, 1999. The Domestic Lines are secured by substantially all of our assets
and contain covenants and restrictions including certain financial ratios,
restrictions on dividend payments and maintainence of a minimum cash balance on
hand of $3.0 million. As of December 31, 1998, we were in compliance with all
such covenants and restrictions.
We have two term loans in place, the proceeds of which were used to finance
leasehold improvements. A loan for our headquarters in Palo Alto for $2.5
million was obtained in December 1995. The loan matures in December 2002, and
bears interest at the bank's Adjusted Treasuries Rate plus 2.25%. At December
31, 1998, the loan balance was $1.5 million and bore interest at a rate of 7.47%
per annum. A loan for our manufacturing facility in Mountain View was obtained
in two increments. An initial amount of $1.0 million was obtained in December
1997, and a $1.5 million increment was obtained in June 1998. This loan matures
in June 2005, and bears interest at LIBOR plus 2.25%. At December 31, 1998, the
loan balance was $2.4 million and bore interest at 7.75% per annum.
During the year ended December 31, 1998, net cash provided by operating
activities was $3.8 million, which resulted primarily from net income of $4.0
million and depreciation and amortization
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of $1.7 million. Net cash used in investing activities was $364,000, which
resulted primarily from the purchase of property and equipment and short-term
investments. Net cash provided by financing activities was $1.2 million.
During 1999, we intend to change our relationships with our distributor and
subdealers in Japan. As a result, credit terms to customers in Japan will be
extended. This will result in increased days sales outstanding beginning in the
second quarter of 1999. In addition, we expect to carry higher inventory
balances in 1999 for some of our key raw materials.
We believe that the net proceeds from this offering, together with available
funds, will be sufficient to meet our capital requirements for the foreseeable
future. We may also utilize cash to acquire or invest in complementary
businesses and technologies, although we do not have any plans, arrangements or
understandings with respect to any future acquisitions at this time. We may sell
additional equity or debt securities or obtain additional credit facilities. The
sale of additional equity securities would result in additional dilution to our
stockholders, and the incurrence of additional debt would result in additional
interest expense.
YEAR 2000 COMPLIANCE
We recently formed an internal task force consisting of senior management
and representatives from all of our functional areas to evaluate those areas of
our business that may be affected by the Year 2000 issue. The task force is
focusing primarily on three areas of potential impact: internal information
systems, internal support systems, and the readiness of significant third
parties with whom we have material business relationships. Our products do not
use or contain any parts which are susceptible to Year 2000 issues.
INTERNAL INFORMATION SYSTEMS. We are in the process of upgrading our
current domestic manufacturing, financial and accounting systems to be Year 2000
compliant, meaning that they are capable of distinguishing 21(st) century dates
from 20(th) century dates. We are in the final stages of testing and training
related to this upgrade. Total cost of the upgrade is expected to be less than
$250,000, the majority of which has already been incurred. Implementation of the
new system is expected to be complete by April 30, 1999. Our overseas
subsidiaries already operate on Year 2000 compliant accounting and distribution
systems. The internal task force has completed its inventory of other upgrades
and modifications required to be Year 2000 compliant. The cost of completing
these upgrades and modifications is not expected to be material.
INTERNAL SUPPORT SYSTEMS. Our telephone, voicemail and other systems such
as our product storage systems have been inventoried by the task force. We are
in the process of contacting the manufactures of these systems to ensure they
are Year 2000 compliant. The task force has not yet identified any internal
support system that would require significant upgrade or replacement to be Year
2000 compliant.
THIRD PARTIES. We are in the process of contacting all major suppliers to
ensure they are Year 2000 compliant.
CONTINGENCY PLANS. We are currently purchasing additional quantities of
materials from selected suppliers and expect to do so throughout 1999.
Our estimated completion dates, costs, risks and other forward-looking
statements regarding Year 2000 issues are based on our best estimates given
information that is currently available and are subject to change. As we
continue to progress with our Year 2000 initiatives, we may discover that it is
more costly, time consuming or difficult to prepare for the Year 2000. We cannot
assure you that we will be successful in our efforts to identify and address all
Year 2000 issues. Even if we act in a timely manner to complete all of our
assessments, and identify, develop and implement our
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remediation plans, some problems may not be identified or corrected in time to
prevent material adverse consequences to our business.
FOREIGN CURRENCY HEDGING
Sales made directly from the United States to our international customers
and distributors are denominated in United States dollars. However, in Japan,
Germany and the United Kingdom, we sell through subsidiaries to customers in
their local currencies. These countries accounted for 23% of our revenue in
1998. As we commence and expand our international operations, our customers may
pay us in foreign currencies, and our exposure to losses in foreign currency
transactions may increase. We have previously limited and may continue to limit
our exposure by the purchase of forward exchange contracts or through similar
hedging strategies. However, no currency hedging strategy can fully protect us
against exchange-related losses.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative--which focused on
freestanding contracts such as options and forwards (including futures and
swaps)--expanding it to include embedded derivatives and many commodity
contracts. Under this statement, every derivative is recorded on the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. This statement is
effective for fiscal years beginning after June 15, 1999. Earlier application is
allowed as of the beginning of any quarter beginning after issuance. We do not
anticipate that the adoption of this statement will have a material impact on
our financial position or results of operations.
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BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."
THE COMPANY
We develop, manufacture and market products for life science research. Our
products enable scientists to identify genes, study how cells are regulated by
genes and search for drugs that can treat diseases. We provide a portfolio of
over 1,500 products that allow scientists to perform academic research and drug
discovery more rapidly and effectively. We sell our products primarily to
scientists within government entities, academic institutions and pharmaceutical
and biotechnology companies. In 1998, our total sales were $47.8 million, and,
since 1994, our sales have grown at a 33% compounded annual rate.
INDUSTRY OVERVIEW
Life science research is conducted in biotechnology and pharmaceutical
companies as well as in academic and government laboratories. Industry analysts
estimate that there are over 300,000 scientists worldwide engaged in life
science research. Based on industry estimates, in 1997, the United States market
for bioreagents approached $1.4 billion. We believe that the life science
research market will continue to expand due to several factors, including: (i)
increasing levels of government and commercial funding for life science
research, (ii) a growing need to identify genes and to analyze their functions
based on new information generated by the Human Genome Project, a federally
funded effort to identify all human genes, and other genome sequencing projects,
(iii) the proliferation of new research initiatives made possible by rapidly
changing molecular biology research techniques, and (iv) intensifying
competition to discover new drug targets and drugs in the pharmaceutical and
biotechnology industries.
Over the past two decades, life science research has experienced substantial
advances, particularly in the field of molecular biology. Molecular biologists
have greatly furthered our understanding of DNA and RNA, the transcription of
DNA to RNA, the translation of RNA to proteins, and the role of proteins in the
regulation of biological processes. This has facilitated a better understanding
of the fundamental role of genes in cellular and molecular biological processes
and in the origin of diseases. It now is recognized that many diseases are
caused by genetic defects, by improper regulation of disease-related genes or by
the disruption of cellular pathways.
In recent years, a vast amount of new DNA sequence data has been generated
by the Human Genome Project and privately funded genomics initiatives. The
usefulness of these genomic data in drug target discovery depends in large part
on the ability of researchers to rapidly and reliably identify genes and their
function in order to develop drug target candidates for therapeutic
intervention. Drug target discovery research utilizing genomic information is
frequently conducted in the following phases:
GENE IDENTIFICATION. Genes are sequences of DNA that contain instructions
to produce a particular protein. Scientists estimate that there are
approximately 80,000 human genes, a substantial number of which have yet to be
identified. Genes are identified using a variety of techniques, including
sequencing and mapping DNA and screening cDNA libraries. cDNA libraries, which
are derived from RNA, are important tools in identifying novel genes.
GENE EXPRESSION ANALYSIS. Gene expression analysis involves determining
which genes have been activated or inactivated within a particular tissue or in
a particular disease state. Differential gene expression analysis compares gene
expression patterns of different tissues, such as diseased
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tissues versus normal tissues. Gene expression analysis is important in linking
specific genes to disease.
FUNCTIONAL ANALYSIS. Functional analysis involves determining the role of a
protein that is encoded by a specific gene. This process is critical to
understanding cellular pathways and to identifying drug targets. Cellular
pathways dictate the interactions of proteins and other components within a cell
and are essential for the proper functioning of a cell.
TARGET VALIDATION. Advances in gene identification, gene expression
analysis and functional analysis have vastly expanded the set of novel
gene-based drug targets. Target validation involves the identification of the
most promising of these drug target candidates for further development. This
includes the identification of specific proteins and the determination of their
role in biological pathways, their toxicity and their correlation to particular
disease states. Cell-based assays represent one of the most effective ways to
conduct target validation.
In both academic research and drug target discovery research, scientists are
constantly in search of tools that will enhance the quality and productivity of
their research efforts. The challenge for companies marketing life science
research products is to bring innovative products to market in order to address
the evolving needs of scientists. For example, in the area of gene
identification, we believe that there is a pressing need for technologies that
can identify full-length gene sequences, work with extremely small tissue
samples and identify gene sequences at higher levels of throughput. In the area
of gene expression analysis, we believe that research is hindered by low-
throughput methods and by difficulties in consistently reproducing and
effectively analyzing data. In the area of functional analysis, we believe that
the available tools are limited. Finally, in the area of target validation, we
believe that gene-based drug discovery has increased the need for more
informative assays.
CLONTECH APPROACH
To address these challenges, we have developed and continue to expand our
portfolio of technologies and innovative tools that enable scientists to conduct
gene-based drug target discovery and other essential molecular biology research
rapidly, effectively and reliably. We offer over 1,500 products within
approximately 130 product lines that enable scientists to conduct research in
the areas of gene identification, gene expression analysis, functional analysis
and target validation.
In the area of gene identification, we offer products that allow for the
rapid identification of full-length gene sequences in a high-throughput manner
while allowing researchers to work with extremely small quantities of tissue
samples. These products include our proprietary PCR-based full-length cloning
systems and technologies.
In the area of gene expression analysis, our patented method for cDNA
library subtraction allows researchers to look with high levels of sensitivity
at differential expression of rare genes. Rare genes, which are expressed in low
abundance, are often the most important in the study of disease pathways.
Additionally, our proprietary cDNA arrays represent a cost-effective and highly
sensitive approach to high-throughput gene expression analysis that does not
require special instrumentation.
In the area of functional analysis, the ability to control and monitor the
protein expression of identified genes and to identify and analyze
protein-protein interactions is essential in determining gene function. We
believe that we offer one of the most tightly controllable protein expression
systems available. Additionally, we believe that our two-hybrid system is a
leading technology, which enables scientists to study protein-protein
interactions IN VIVO.
In the area of target validation, our signal transduction technology allows
scientists to monitor effectively the effect of specific stimuli on cellular
pathways. We believe that our signal transduction system was one of the first
commercially available products to allow scientists to monitor multiple pathways
simultaneously and with a high level of sensitivity. Additionally, we believe
that our
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retroviral gene transfer technology is one of the leading commercial products
for the rapid and efficient construction of cell lines used in target
validation.
CLONTECH STRATEGY
We believe that we are a leading provider of innovative tools and enabling
technologies for life science research. We employ the following strategies to
maintain and expand our leadership position:
PIONEER THE COMMERCIALIZATION OF ENABLING TECHNOLOGIES. We anticipate and
quickly respond to the evolving needs of life science researchers. We have a
proven record of developing fundamental enabling technologies through our
internal research and development efforts, identifying and acquiring
technologies from third parties, and converting novel technologies into
commercially viable research tools. For example, we identified the two-hybrid
technology as a technology that would enable researchers to identify
protein-protein interactions, and we commercialized our MATCHMAKER product
approximately two years before any significant competitive product entered the
market.
RAPIDLY DEVELOP NEW TECHNOLOGIES AND INNOVATIVE TOOLS. Once we have
identified a market opportunity, we attempt to rapidly bring new enabling
technologies and innovative tools to market. We believe that being the first to
introduce innovative tools is instrumental to establishing our products as the
technology standard. Our research and development, sales and marketing and
manufacturing personnel collaborate closely to facilitate the rapid development
and commercialization of new products. For example, within one year of
identifying a need for a low-cost, high-throughput method for differential gene
expression analysis, we developed and launched our line of cDNA arrays.
MAINTAIN TECHNOLOGICAL LEADERSHIP. We continuously enhance and extend our
product lines to protect our technology leadership position. We believe that
being a technology leader is imperative to establishing and maintaining market
share. For example, we believe that we are one of the leading suppliers of
PCR-based cloning products due, in large part, to our innovative and
well-received new product introductions, such as cDNA subtraction and
full-length cloning systems.
PROVIDE A BROAD PORTFOLIO OF PRODUCTS. We provide a range of innovative
tools and enabling technologies that address research questions across all
phases of molecular biology research. We believe that our product portfolio
offers customers integrated research solutions for a variety of their research
needs. This broad portfolio of products reduces our reliance on any single
product line or market area.
LEVERAGE TECHNICAL SALES AND SERVICE CAPABILITIES. We provide a high level
of technical sales and service to enable our customers to easily select and use
the appropriate products for their needs. We employ a staff of 14 highly trained
technical service support specialists (six of whom hold Ph.D.s) to consult with
research scientists concerning the use of our products and research protocols.
Additionally, this technical communication with our customers allows us to
identify and respond to evolving market demands for new products.
RECRUIT, DEVELOP AND RETAIN OUTSTANDING SCIENTISTS. We have established a
working environment that provides our scientists with substantial latitude to
develop products and technologies. We believe that this environment increases
our commercial success and our ability to recruit, develop and retain
outstanding scientists.
CLONTECH PRODUCTS
We offer over 1,500 products within approximately 130 product lines that
address customer needs in the areas of gene identification, gene expression
analysis, functional analysis and target
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validation. These products include enabling technologies, which allow our
customers to conduct experiments that would not otherwise be possible, and
innovative research tools, which permit researchers to achieve results in a more
rapid, efficient and reproducible manner.
Our products are packaged in a variety of formats, but most typically as
kits or systems, and are designed to be compatible with each other to provide an
integrated approach to molecular biology research. We believe that scientists
select products and make purchasing decisions based on product performance,
quality, reputation, time savings, ease of use, service and availability.
GENE IDENTIFICATION
We offer a broad range of proprietary products for gene identification,
including cDNA and genomic libraries, ADVANTAGE PCR enzyme systems, SMART PCR
cDNA library construction kits, MARATHON cDNA products and nucleic acid
purification products.
Our cDNA and genomic libraries are used to isolate, identify and sequence
novel genes. We have optimized library construction technology to maximize the
number of full-length genes contained in each library and to increase the
likelihood of identifying a novel gene. Our library products have been cited
extensively in peer-reviewed scientific journals, and many important
disease-related genes have been identified using these products, including the
gene causing cystic fibrosis; BRCA2, the early-onset breast indicator gene; and
the N-MYC oncogene.
Polymerase chain reaction ("PCR") is a nucleic acid amplification technology
that is now basic to most molecular biology research and gene-based drug target
discovery. Soon after the introduction of PCR technology, we launched our first
PCR products and subsequently employed PCR as a technology platform underlying
several of our proprietary gene identification product lines. Historically, a
limitation of PCR was that only relatively short sequences could be reliably
amplified without error because of the enzyme commonly utilized in the
amplification process. In 1995, we introduced the ADVANTAGE PCR enzyme systems
(the "ADVANTAGE" systems), which offer the reliable amplification of longer DNA
sequences and a number of other research advantages. The ADVANTAGE systems
complement many of our products to provide a system to isolate and identify
target genes.
Identifying novel, disease-related genes often requires working with
clinical samples, such as tumor biopsies, which generally yield very small
amounts of RNA, the material used to create cDNA libraries. In 1996, we
introduced our proprietary SMART PCR cDNA library construction kit (the "SMART "
kit). We believe that the SMART kit is the only commercially available product
that allows researchers to construct their own full-length cDNA libraries from
as little as 25-50 nanograms of RNA. This SMART method is rapid and reproducible
and is compatible with our MARATHON kit and PCR-SELECT cDNA subtraction kit.
Obtaining full-length gene sequences is critical to understanding gene
expression and protein function, both of which are essential to gene-based drug
target discovery. Our proprietary MARATHON cDNA amplification kit (the
"MARATHON" kit) allows the determination of a target gene's full-length cDNA
sequence and the rapid analysis of several genes in one experiment. We also
offer time-saving, MARATHON-READY cDNAs, which eliminate the need to acquire
difficult-to-obtain human tissues. The MARATHON kit and MARATHON-READY cDNAs are
optimized for use with our ADVANTAGE systems.
The quality of DNA and RNA sample preparation, isolation and purification is
critical to the success of any gene identification and expression project. In
order to address a large market opportunity and to integrate sample preparation
technology into our product line, we offer the NUCLEOBOND, NUCLEOSPIN and
NUCLEOTRAP family of nucleic acid purification products through a distribution
agreement with Macherey-Nagel GmbH & Co. KG ("Macherey-Nagel"), a German
specialty chemical and laboratory products company. These products decrease the
time necessary for nucleic acid purification and can be used in the most
demanding molecular biology applications,
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including mammalian transfection and automated sequencing. We sell our
purification products both separately and as components in certain of our kits.
GENE EXPRESSION ANALYSIS
We offer a variety of products for investigating differential gene
expression analysis including ATLAS cDNA arrays, the PCR-SELECT cDNA subtraction
kit, the DELTA differential display kit, MULTIPLE TISSUE NORTHERN blots,
MULTIPLE TISSUE EXPRESSION arrays and our extensive RNA bank.
cDNA arrays represent an emerging technology used to analyze gene expression
patterns in a high-throughput manner. Until recently, few array products were
commercially available and affordable to the general research community. In
response, we introduced the easy-to-use ATLAS cDNA expression arrays (the
"ATLAS" arrays), which allow scientists to obtain expression patterns for
hundreds of genes in a single experiment without specialized instrumentation.
ATLAS arrays are designed to allow researchers to study specific disease areas
and gene categories and can accommodate over 500 PCR-amplified cDNA fragments.
We utilize a network of scientific consultants to assist us in the selection of
the genes to include on our arrays. Once we determine which genes to include on
our arrays, we use proprietary software to select fragments that will provide
the most sensitive and reproducible results. The ATLAS array technology has been
used, for example, in research studies to assess changing gene expression
patterns of breast tumors in response to chemotherapy and radiation therapy.
Since only a fraction of all human genes have been identified, there is
substantial interest in identifying new genes, particularly rarely expressed
genes that are often implicated in the occurrence of disease. Our patented
PCR-SELECT cDNA subtraction kit (the "SELECT" kit) is used to search for
differentially expressed genes and is optimized to capture rarely expressed
genes. The SELECT kit allows researchers to quickly analyze many potentially
differentially expressed genes in one experiment and is compatible with SMART
technology, thereby increasing its power to identify important disease-related
genes from small amounts of tissue samples. The SELECT kit has been used to
identify differentially expressed genes in breast cancer cell lines and
apoptosis (programmed cell death), among others.
Differential display is another powerful technique used to analyze
differential gene expression patterns. Differential display is most useful for
investigating genes expressed in high abundance and is one of the fastest
methods available for performing such analysis. Our DELTA differential display
kit provides a rapid and robust PCR-based method for obtaining highly
reproducible results. This technology complements the array and subtraction
technologies described above.
Determining tissue-specific expression is important in the characterization
of any gene. Tissue expression patterns are critical early indicators of gene
function and of the suitability of gene-based drug discovery targets. However,
tissue-specific expression experiments can be challenging due to the difficulty
of obtaining a wide variety of human tissues for analysis. We believe that our
pre-made MULTIPLE TISSUE NORTHERN ("MTN") blots are one of the most commonly
used commercially available means of tissue-specific expression analysis and
incorporate one of the most extensive selections of tissues. The MTN blots
product line has been extensively cited in peer-reviewed scientific journals.
For example, MTN blots can be used to compare gene sequences across various
tissues and to confirm differential expression of cDNAs yielded by our SELECT
kit. We also offer MULTIPLE TISSUE EXPRESSION arrays, which enable
high-throughput analysis of tissue-specific expression, and an extensive variety
of RNAs, which can be used by scientists as components in several applications,
including library construction.
FUNCTIONAL ANALYSIS
The ability to identify and analyze protein-protein interactions and to
control and monitor protein expression of identified genes is important in
determining gene function. We offer a variety
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of products for functional analysis including the MATCHMAKER two-hybrid systems
and the TET-OFF/ ON gene expression systems.
Two-hybrid technology enables the identification and detection of
protein-protein interactions, many of which were previously undetectable IN
VIVO. We were the first to commercialize this technology with the introduction
of our MATCHMAKER two-hybrid systems (the "MATCHMAKER" systems), and we have
continued to expand this product line. MATCHMAKER systems enable researchers not
only to identify protein-protein interactions, but also to rapidly obtain the
gene sequences for these proteins. In addition, MATCHMAKER systems are
sufficiently sensitive to detect even weak and transient interactions.
MATCHMAKER systems have been cited in scientific journals and used in the
identification of the well-studied oncogenes RAF and RAS.
In order to determine gene function, researchers frequently assess the
impact on a cell of suppressing or stimulating expression of that gene. Our
TET-OFF/ON gene expression systems (the "TET" systems), exclusively licensed
from BASF Bioresearch Corporation, regulate the expression of single genes in a
precisely controlled, reversible and quantitative manner. As a result, the TET
systems are employed extensively in the pharmaceutical industry for the creation
of human disease models to aid in the drug discovery process.
TARGET VALIDATION
Increasing use of genetic information by pharmaceutical companies to develop
targets for screening potential drug candidates has increased the need for more
informative cell-based assays. We have introduced several products to address
this emerging market, such as the MERCURY pathway profiling systems, the RETRO-X
retroviral expression systems, the APOALERT detection systems and the LIVING
COLORS family of fluorescent proteins.
Our recently introduced MERCURY pathway profiling systems allow researchers
to rapidly and simultaneously analyze transcriptional responses to key signal
transduction pathways. Identifying signal transduction pathways that are
activated by extracellular stimuli can provide fundamental information about
disease processes, which may be essential for validating drug candidates.
Our RETRO-X retroviral expression systems enable scientists to introduce
genes of interest into mammalian cells IN VITRO or IN VIVO. Cell line
construction is often a bottleneck in target validation, functional assays, and
drug candidate screening. Retroviral technology can be used for rapid and highly
efficient gene transfer and cell line construction.
Our APOALERT detection systems allow researchers to monitor the normal,
genetically-controlled process of programmed cell death, or apoptosis.
Disruption of the apoptotic process is implicated in a number of diseases,
including cancer, AIDS and Alzheimer's. APOALERT systems are designed to be both
rapid and sensitive, and these products can be easily modified for
high-throughput applications in mammalian cell lines.
Our fluorescent protein technology enables IN VIVO, real-time detection of
gene expression and protein localization. This technology has been broadly
applied across molecular biology research and has increased the utility of
cell-based drug screening assays, particularly for use in functional analysis.
NEW PRODUCT DEVELOPMENT
We believe that our focus on technological innovation, rapid product
development and short product launch cycle provide us with a competitive
advantage. Our frequent introduction of new products accounts for a significant
portion of our revenue growth. In 1998, we obtained approximately 9.8% of our
total revenue from products and product extensions launched in that year. In
1997, we obtained approximately 7.6% of our total revenue from products and
product extensions launched in that year.
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Our scientists develop new products and enhance existing products based on
internally developed or licensed platform technologies. We provide our
scientists with substantial latitude to develop products and technologies. We
conduct our research and development at our technology center in Palo Alto,
California. Our research and development department is composed of five main
business units and employs 71 people, 37 of whom hold a Ph.D.
We identify potential new products from a variety of sources, including
customer input, consultations with scientific advisors at research institutes
and universities, review of research journals and participation in industry
symposia. We seek to license technology when we believe that such technology can
provide the basis for a commercially viable product. Some licensed technologies
serve as platforms for additional product innovation and follow-on products. For
example, we were an early licensee of the basic PCR technology and not only
utilized this platform to develop our basic PCR products, but also incorporated
PCR into many of our other products, such as our gene identification products
and cDNA arrays.
In order to access new technology, we have entered and may continue to enter
into joint product development agreements. For example, we have entered into an
agreement to develop and to commercialize array products with Molecular
Dynamics, Inc., a subsidiary of Amersham Pharmacia Biotech, Inc. In addition, we
have entered into an agreement to develop and commercialize array products for
the toxicology market with Phase-1 Molecular Toxicology, Inc. We also have a
number of informal scientific collaborations with a variety of scientists and
companies under which we share and receive pertinent technical information in
order to test and validate our technologies, increase the adoption of our
technologies and increase the number of our scientific publications.
Our research scientists receive input from, and work closely with, our
product specialists and managers as well as marketing and manufacturing
personnel and patent counsel to accelerate and focus the new product development
process. This highly developed internal process expedites the transfer of
products from research and development to manufacturing and commercialization
and allows us to be highly responsive to the needs of our customers.
We spent $7.0 million on research and development activities during the year
ended December 31, 1998, and $5.1 million on research development activities
during the year ended December 31, 1997. No material portion of this investment
in research and development was sponsored by customers.
From time to time, we perform research and development on behalf of third
parties pursuant to contractual arrangements. We do not anticipate that these
activities will utilize significant resources of our research and development
department or will be a significant source of revenue.
MARKETING
Our marketing strategy is focused on maintaining and enhancing our
reputation as a leading provider of innovative, high quality life science
research tools and enabling technologies. We market our products in more than 30
countries throughout the world.
Our marketing department distributes an annual catalog, the CLONTECHNIQUES
quarterly newsletter, advertisements, brochures, flyers and other sales and
supporting publications. We devote significant resources to create and design a
catalog with a high degree of scientific and technical content. The catalog is
extensively indexed and cross-referenced by application, product category and
individual product, and it contains a variety of color-coded reference aids that
are designed to facilitate product selection. We communicate the launch of our
new products principally through our CLONTECHNIQUES quarterly newsletter.
We maintain a proprietary database that is linked to our order entry system,
allowing for customer profiling based on purchasing behavior. Customer
information is added or updated based on data obtained from various sources,
including trade shows, our sales representatives, calls
30
<PAGE>
received in technical and customer support and our Internet web site. Our
subsidiaries in Japan, Germany and the United Kingdom maintain similar customer
databases.
We recently established a market development group to improve our
responsiveness to our customer needs and to enhance our market penetration. The
group focuses on market research, customer interaction, promotional activity and
sales force and distributor training. We expect to expand this group in 1999.
We maintain a web site with information regarding our products,
publications, technical service and ordering information. During the last
quarter of 1998, our web site was visited an average of 32,779 times each month.
We believe that the Internet will become an increasingly important channel of
customer communication and product distribution, and we intend to further
develop our Internet presence.
SALES, CUSTOMER SERVICE AND DISTRIBUTION
During 1998, we sold products to more than 1,800 accounts in North America.
Our accounts are comprised of academic institutions, government entities and
pharmaceutical and biotechnology companies that generally employ multiple
scientists who are the end users of our products. We market our products to the
individual scientists who make purchasing decisions. No single account
represented more than 10% of our total sales for the year ended December 31,
1998. In certain circumstances, we may consider distributing products produced
by third parties that are complementary to our products. For example, we have
entered into a distribution agreement with Macherey-Nagel for the distribution
of certain nucleic acid purification products.
We employ a direct sales force of 13 individuals in North America and six
individuals internationally and have a network of 25 independent foreign
distributors. We have established sales, service and distribution subsidiaries
in Japan, Germany, and the United Kingdom.
Our Japanese sales, service and distribution subsidiary began operations in
April 1998. Prior to that time, we informed our exclusive Japanese distributor
that we would be terminating our relationship effective March 31, 1999. Since
April 1998, we have been marketing our products directly to end-users and, after
the termination of our distributor, we intend to continue to sell our products
through the subdealers with whom our distributor had relationships. As a result,
we do not expect the termination of our distributor to have a material impact on
sales. However, as a result of billing directly to the subdealers, we expect
that credit terms will be extended and that we will have increased days sales
outstanding.
Our North American sales efforts are supported by eight customer service
representatives who receive and process telephone orders directly from
customers, utilizing a computerized system with immediate access to detailed
information about the customer, as well as the product, its price and
availability. Additionally, we employ a staff of 14 highly trained technical
service support specialists (six of whom have Ph.D.s) to consult with research
scientists concerning the use of our products and research protocols. Technical
support is also provided by our foreign distributors and subsidiaries.
Life science research frequently requires the rapid delivery of our products
on short notice; the speed and accuracy with which such products are delivered
can affect the success or failure of the researcher's work. We generally ship
our products for next-day or second-day delivery. Based on our monthly domestic
shipping statistics during the final quarter of 1998, over 99% of customer
orders received by 4:00 p.m. Pacific time were shipped on the same day. Our
foreign subsidiaries maintain an inventory of the most commonly ordered items in
order to provide a similar level of service to their customers.
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<PAGE>
MANUFACTURING AND QUALITY ASSURANCE
Our internally manufactured products accounted for over 87% of product
revenue for the year ended December 31, 1998. We lease a 42,500 square-foot
manufacturing facility in Mountain View, California. Many of our products
require several days or weeks to be made and tested. Therefore, we employ a
make-to-stock strategy to meet the customer requirements of same-day shipping.
Except for our cDNA array products, our ability to automate manufacturing
processes other than labeling and filling has been limited. We employ highly
educated manufacturing workers, who are trained to manufacture several different
products to allow for changes in demand.
We outsource a small portion of our manufacturing in order to maintain
production flexibility. These relationships are pursuant to non-exclusive
purchase orders and standard supply agreements. In the event that these
relationships are terminated, we believe that we could use alternate suppliers
or manufacture such products in-house. Macherey-Nagel manufactures all products
that we currently sell under our distribution agreement with Macherey-Nagel.
Quality control testing is performed on all products we distribute, whether
they are internally manufactured or externally sourced. Our production personnel
perform in-process quality control at various stages of the manufacturing
process. Our quality control specialists perform final batch testing on all
finished goods we manufacture. We are in the process of applying for ISO 9001
certification of our manufacturing policies and procedures utilized in the
procurement, manufacturing and distribution of our products.
COMPETITION
The market for our products is highly competitive, and we expect competition
to increase. We compete with many other life science research product suppliers.
We have significantly fewer research and development, marketing, financial and
other resources than many of our competitors. These competitors may have
developed or could in the future develop new technologies that compete with our
products or render our products obsolete. There are few barriers to entry into
our markets, and new competitors frequently enter the market with competitive
products. We are also likely to encounter increased competition as we enter new
markets. We currently benefit from sales in emerging niche research markets,
which, as they expand, may attract the attention of our competitors. Some of our
competitors have in the past and may in the future compete by lowering prices on
certain products. In certain cases, we may respond by lowering our prices,
exiting the market or transitioning the market to next generation technologies.
Competitors offer a broad range of equipment, laboratory supplies and other
products, including research products that compete with our products. We believe
that customers in our markets display a significant amount of loyalty to their
initial supplier of a particular product. Therefore, we may experience
difficulties in generating sales from customers, who initially purchased
products from competitors. Similarly, we believe that there is a significant
competitive advantage in being the first to introduce a new product to market.
Accordingly, we believe that to compete effectively, we will need to
consistently be first to market with important new research products and
services. To the extent that we are unable to be the first to develop and supply
new products, our competitive position will suffer.
GOVERNMENT REGULATION
Our products are generally sold for research purposes and do not subject us
to the regulatory requirements of the United States Food and Drug
Administration.
Because of the nature of our operations and the use of hazardous substances
in our ongoing manufacturing and research and development activities, we
maintain strict internal controls and we are subject to stringent federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacturing, storage, air emission, effluent discharge, handling and disposal
of
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<PAGE>
certain materials and wastes. We do not expect that compliance with the
government regulations to which we are subject will materially adversely affect
our capital expenditures, earnings or competitive position. We utilize third
parties to dispose of hazardous materials and waste. Although we believe that we
are in material compliance with all applicable government and environmental
laws, rules, regulations and policies, there can be no assurance that our
business, financial condition and results of operations will not be materially
adversely affected by current or future environmental laws, rules, regulations
and policies or by liability arising from any past or future releases or
discharges of materials that could be hazardous.
TECHNOLOGY LICENSING
We are dependent, in part, on the patent rights to platform technologies
licensed on non-exclusive and exclusive bases from academic institutions,
private and public foundations, biotechnology companies and others. These
licenses cover certain of our technologies, including PCR, fluorescence, arrays,
gene expression systems, and enzymes.
Under these license agreements, we typically pay the licensors up-front fees
and royalties based upon the sales of products that incorporate the licensed
technologies. These license agreements are generally terminable only upon our
material breach. Our failure to maintain these licenses and the rights to such
technology could have a material adverse effect on our business, financial
condition and results of operations. We intend to continue our current practice
of licensing platform technologies to enable our own internally developed
innovations. In addition, in order to avoid patent infringement litigation, we
may be required to license certain technology rights. There can be no assurance
that we will be able to obtain such licenses on acceptable terms, if at all.
INTELLECTUAL PROPERTY
We rely on a combination of patents, licenses and trademarks to establish
and to protect our proprietary rights in our technologies and products. As of
January 31, 1999, we had six issued patents in the United States and had 42
pending patent applications in the United States. In addition, we had nine
pending foreign applications. These patents and patent applications relate to
cloning, PCR, arrays, enzymes, fluorescent proteins, reporter assays and other
technologies. Our policy is to file patents on platform technologies in Europe,
the United States and Japan. We intend to aggressively prosecute and enforce our
patents and otherwise protect our proprietary technologies. United States
patents issued from applications submitted prior to June 8, 1995, have a term of
17 years from the date of issue. United States patents issued from applications
submitted on or after June 8, 1995, have a term of 20 years from the date of
filing of the application. Patents in most other countries have a term of 20
years from the date of filing of the patent application.
The patent positions of life sciences companies, including Clontech, are
generally uncertain and involve complex legal and factual questions. There can
be no assurance that patent applications filed by us or our licensors will
result in patents being issued, that the claims of such patents will offer
significant protection for our technology, or that any patents issued to or
licensed by us will not be challenged, narrowed, invalidated or circumvented.
Further, there can be no assurance that others will not independently develop
similar technologies or duplicate the technology owned by or licensed to us or
design around the patented aspects of such technology.
We rely upon and expect to continue to rely upon unpatented proprietary
know-how and continuing technological innovation in the development and
manufacture of many of our principal products. Our policy is to require all of
our employees, consultants and advisors to enter into confidentiality agreements
with us. There can be no assurance, however, that these agreements will provide
meaningful protection for our trade secrets or proprietary know-how in the event
of any unauthorized use or disclosure of such know-how. In addition, we cannot
assure you that others will not obtain access to or develop independently
similar or equivalent trade secrets or know-how.
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<PAGE>
Patent protection of compositions of matter, including DNA and proteins,
along with methods and processes, is prevalent in the life science industry. As
more patents are issued, we expect that more patents owned by third parties will
cover aspects of our products. As we deem appropriate, we conduct searches to
determine whether our products infringe upon any existing patents. Further, our
policy is to seek "freedom to operate" assessments in fields where the art is
crowded or in fields of rapid innovation and development. Such assessments,
however, become outdated quickly, and there can be no assurance that the
products and technologies we currently market, or may seek to market in the
future, will not infringe patents or other rights owned by others. We have
received and expect to receive invitations to license patented technology from
third parties. There can be no assurance, however, that we will be able to
obtain any licenses on acceptable terms, if at all.
For example, we market products containing several variants of AEQUOREA
VICTORIA green fluorescent protein ("GFP"), which, during 1998, accounted for
less than 3% of our revenue. Aurora Biosciences Corporation owns the exclusive
rights to patents for certain aspects of GFP. Our current position with respect
to these patents is unclear. We may find it necessary to discontinue selling our
GFP products, license certain of Aurora's patent rights or participate in patent
litigation.
The life science industry has a history of patent litigation and will likely
continue to experience patent litigation concerning drug discovery technologies.
We may be subject to legal proceedings in order to enforce our proprietary
rights or defend ourselves against claims of infringement. The cost of
litigation to uphold the validity and prevent infringement of patents can be
substantial and require a significant commitment of management's time. We may
also be involved in interferences with respect to patent applications. Our
inability to obtain or maintain patent protection or necessary licenses could
have a material adverse effect on our business, financial condition and results
of operations.
We are aware of patents and pending applications held by third parties that
may relate to our array technology. These patents and pending applications
address various aspects of array technology, including DNA sequences, signal
detection methods, attachment chemistry and density. We have received, and may
receive in the future, notices claiming infringement of proprietary DNA
sequences. We cannot assure you that we will not infringe these patents or
patents belonging to other parties, or that we would be able to obtain licenses
to such patents on commercially acceptable terms, if at all.
See "Risk Factors--We Depend on Patents and Proprietary Technology" and
"--We Depend on Licenses from Third Parties."
HUMAN RESOURCES
As of January 31, 1999, we employed 312 persons, on a full-time or part-time
basis, including 60 employees who hold Ph.D.s. Of our employees, 71 work in
research and development, 47 work in sales, 96 work in
operations/production/shipping, 26 work in marketing, 35 work in administration
and 37 in our foreign subsidiaries. None of our employees are covered by a
collective bargaining agreement, and we consider relations with our employees to
be good.
FACILITIES
We lease approximately 37,000 square feet of space in Palo Alto, California,
for use as our corporate headquarters and laboratory space. This lease expires
in May 2005 and may be renewed for a five-year term at our option. We also
occupy approximately 10,800 square feet of additional laboratory space in Palo
Alto under a five-year lease that expires in March 1999. We are currently
negotiating an extension to the lease. We also occupy approximately 9,600 square
feet of additional laboratory space in Palo Alto under a lease that expires in
April 2003.
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<PAGE>
We also lease approximately 42,500 square feet of space in Mountain View,
California, for use as a customer support, manufacturing, warehouse and shipping
facility. This lease expires in September 2007 and may be renewed for two
five-year terms at our option.
We occupy approximately 5,100 square feet of space for use as a sales,
distribution and warehousing facility in Japan under a lease that expires in
January 2001. We occupy approximately 3,800 square feet of space for use as a
sales, distribution and warehousing facility in Germany under a lease that
expires in February 2000. We also occupy approximately 2,300 square feet of
space in the United Kingdom for use as a sales, distribution and warehousing
facility under a lease that expires in September 2002.
We believe that our California properties are suitable and adequate to carry
on our business through 1999. We have approximately 10,000 square feet of space
for expansion of our research and development activities. We intend to expand
our manufacturing and office facilities and are investigating sites near our
existing facilities.
LEGAL PROCEEDINGS
On December 31, 1996, we were served with a complaint filed by LTI in the
Federal District Court for the District of Maryland, captioned Life
Technologies, Inc. v. Clontech Laboratories, Inc., No. AW 96-4080. We are the
only defendant named in the complaint. The complaint alleges three causes of
action related to past sales of products: direct patent infringement, inducement
of third parties to infringe LTI's patents by third parties and breach of a
label license. We believe that the allegations in the LTI complaint are without
merit and we intend to defend ourselves vigorously against each action. As of
January 31, 1999, the case had not been scheduled for trial. In addition, on
December 24, 1998, we filed suit against LTI in the Federal District Court in
the district of Delaware, captioned Clontech Laboratories, Inc. v. Life
Technologies, Inc. No. 98-691-GMS, alleging false patent marking and violations
of the Delaware Deceptive Trade Practices Act.
From time to time, we may be subject to business litigation. We do not
anticipate that such litigation would result in a material adverse effect on our
business.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of Clontech as of January 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Kenneth S. Fong, Ph.D..................... 52 President, Chief Executive Officer and Director
William W. Sims........................... 53 Senior Vice President and Chief Financial Officer
Paul H. Kao............................... 45 Senior Vice President
Joseph A. Grippo.......................... 59 Vice President, Administration
Carol Casals Lou.......................... 37 Vice President, Sales and Marketing
Paul D. Siebert, Ph.D..................... 44 Scientific Director
Anne M. Scholz............................ 33 Director of Product and Business Development
Sarah J. Brashears........................ 40 Director of Intellectual Property
Gregory M. Avis(1)........................ 40 Director
David S. Lee(1)........................... 61 Director
Steven Goldby(1).......................... 58 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee and the Audit Committee.
KENNETH S. FONG, PH.D. is a founder of Clontech and has served as President,
Chief Executive Officer and Director of Clontech since its inception in March
1984. Dr. Fong received a B.S. in Biological Sciences from San Francisco State
University and a Ph.D. in Molecular Biology and Microbiology from Indiana
University. Dr. Fong completed his post-doctoral studies at the Molecular
Biology Institute at the University of California, Los Angeles, and the City of
Hope Medical Center. Dr. Fong was a Senior Staff Fellow at the National
Institute of Environmental Health Sciences and the University of North Carolina,
Chapel Hill from 1981 to 1984.
WILLIAM W. SIMS has served as Senior Vice President and Chief Financial
Officer of Clontech since July 1998. From May 1994 to June 1998, Mr. Sims served
as Vice President, Finance and Chief Financial Officer of the Palo Alto Medical
Foundation. From February 1991 to April 1994, Mr. Sims served as Senior Vice
President, Finance, Operations and Quality Assurance at Syntex Laboratories,
Inc., the domestic subsidiary of Syntex Corporation, a pharmaceutical company.
Mr. Sims joined Syntex Corporation in 1981. Mr. Sims received a B.S. in
Accounting from Oregon State University and an M.B.A. from Stanford University.
PAUL H. KAO has served as Senior Vice President of Clontech since June 1996.
From January 1990 to May 1996, Mr. Kao served as Vice President of Marketing and
Operations of Clontech and from November 1987 to January 1990, Mr. Kao served as
International Sales Manager of Clontech. Mr. Kao received a B.S. in Chemistry
from Tamkang University, Taiwan, and an M.B.A. from Santa Clara University.
JOSEPH A. GRIPPO has served as Vice President, Administration of Clontech
since July 1998 and served as Chief Financial Officer of Clontech from January
1993 to July 1998. Mr. Grippo received a B.S. in Economics from the University
of California, Berkeley, a B.A. in Psychology from Pomona College and an M.B.A.
from Santa Clara University.
CAROL CASALS LOU has served as Vice President, Sales and Marketing of
Clontech since July 1998. Ms. Lou served as Vice President of Sales and
Operations of Clontech from February 1996 to July 1998. From February 1994 to
February 1996, Ms. Lou served as Director, Sales and Marketing of Clontech and
from November 1990 to February 1994, Ms. Lou served as Marketing Manager of
Clontech. Ms. Lou received a B.S. in Biological Sciences from University of
California, Irvine.
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<PAGE>
PAUL D. SIEBERT, PH.D. has served as Scientific Director of Clontech since
July 1993. Dr. Siebert served as Director of Research of Clontech from May 1988
to June 1993 and served as a Staff Scientist of Clontech from October 1987 to
April 1988. Dr. Siebert received a B.S. in Cellular & Molecular Biology from the
University of Washington, Seattle and a Ph.D. in Biochemistry from the
University of California, Riverside. Dr. Siebert completed his post-doctoral
studies at the La Jolla Cancer Research Foundation and the University of
California, San Diego.
ANNE M. SCHOLZ has served as Director of Product and Business Development of
Clontech since July 1998. From February 1996 to July 1998, Ms. Scholz served as
Director of Marketing of Clontech. From February 1995 to January 1996, Ms.
Scholz served as Associate Director of Marketing of Clontech and from September
1993 to January 1995 as Product Manager of Clontech. Ms. Scholz received a B.S.
in Chemistry and Biochemistry from California State University, San Jose, and an
M.B.A. from Santa Clara University.
SARAH J. BRASHEARS has served as Director of Intellectual Property of
Clontech since February 1998. From July 1996 to December 1997, Ms. Brashears was
an associate with McGregor & Adler, PC. From August 1993 to July 1996, Ms.
Brashears was an associate with Fulbright & Jaworski, LLP. Ms. Brashears served
as a research biologist from 1986 to 1990 at the Baylor College of Medicine and
the University of Texas M.D. Anderson Cancer Center, Houston. Ms. Brashears
received a B.S. from Missouri Western State College and a J.D. from the
University of Nebraska College of Law.
GREGORY M. AVIS has served as a Director of Clontech since September 1997.
Mr. Avis joined Summit Partners, a venture capital fund, in 1984 and has served
as its Managing Partner since 1990. Mr. Avis is also a director of Digital Link
Corp., PowerWave Technologies, Extended Systems, Inc., and Splash Technology,
Inc. Mr. Avis received a B.A. from Williams College and an M.B.A. from Harvard
Business School.
DAVID S. LEE has served as a Director of Clontech since April 1998. Mr. Lee
is a Regent of the University of California and is also the Chairman of the
Board of CMC Industries, Inc. and DTC Data Technology Corp. Mr. Lee is a
director of Linear Technology Corporation and Centigram Communications Corp. Mr.
Lee was the founder of Diablo Systems, Inc. and Qume Corporation. Mr. Lee
received an Honorary Doctorate of Engineering and a B.S. degree in Mechanical
Engineering from Montana State University and an M.S. in Mechanical Engineering
from North Dakota State University.
STEVEN GOLDBY has served as a Director of Clontech since April 1998. Mr.
Goldby has been Chairman and Chief Executive Officer of Symyx Technologies,
Inc., a material science company, since July 1998. From January 1982 until July
1998, Mr. Goldby was employed by MDL Information Systems, Inc., an enterprise
software developer, in various capacities and most recently as Chief Executive
Officer. Mr. Goldby is also a director of Aspect Development, Inc. Mr. Goldby
received a B.A. from the University of North Carolina and a J.D. from Georgetown
University Law Center.
Currently our Board of Directors is comprised of four directors. Directors
are elected by the stockholders at each annual meeting of stockholders to serve
until the next annual meeting of stockholders or until their successors are duly
elected and qualified. Executive officers are elected by, and serve at the
discretion of, the Board. Our amended and restated certificate of incorporation
and amended and restated bylaws, which will become effective upon the closing of
this offering, authorize a Board of one or more directors, and the number of
directors may thereafter be changed by the Board without stockholder approval.
In addition, stockholders may, in certain circumstances, be entitled to exercise
cumulative voting rights with respect to the election of directors. See
"Description of Capital Stock."
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<PAGE>
BOARD COMMITTEES
In July 1998, Clontech's Board of Directors formed the Compensation
Committee to review and approve the compensation and benefits for our key
executive officers, administer our stock purchase and stock option plans and
make recommendations to the Board regarding such matters. The Compensation
Committee is currently composed of Gregory M. Avis, Steven Goldby and David S.
Lee. In July 1998, Clontech's Board of Directors formed the Audit Committee to
review our internal accounting procedures and to consult with and review the
services provided by our independent accountants. The Audit Committee is
currently composed of Gregory M. Avis, Steven Goldby and David S. Lee.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation from Clontech for their
services as members of the Board of Directors. They may be reimbursed for
certain expenses in connection with attendance at Board and Committee meetings.
All of our non-employee directors are entitled to receive non-discretionary
stock option grants under Clontech's 1998 Non-Employee Directors' Stock Option
Plan.
In April 1998, David S. Lee, Director, received an option for 13,333 shares
at an exercise price of $7.13. In July 1998, Mr. Lee received another option for
13,333 shares at an exercise price of $9.00. In April 1998, Steven Goldby,
Director, received an option for 13,333 shares at an exercise price of $7.13. In
July 1998, Mr. Goldby received another option for 13,333 shares at an exercise
price of $9.00. Each option granted has a four year vesting schedule. Each of
the above options was granted under the 1997 Equity Incentive Plan and vests
over four years. See "--Employee Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From Clontech's inception through June 1998, the Board of Directors made all
determinations with respect to executive officer compensation. Since July 1998,
the Compensation Committee has made all determinations relating to executive
officer compensation.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to or earned by our Chief Executive Officer and four most
highly compensated executive officers during the year ended December 31, 1998
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION
--------------------------------------------- AWARDS
SECURITIES -----------------
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) OPTIONS(#) COMPENSATION(3)
- ----------------------------------------- ----------- --------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Kenneth S. Fong, Ph.D. .................. $ 175,500 $ 12,000 $ 40,000 -- $ 10,558
President and Chief Executive Officer
Paul H. Kao ............................. 140,231 42,000 20,000 60,472 5,958
Senior Vice President
Carol Casals Lou ........................ 116,538 38,000 -- 38,666 6,186
Vice President, Sales and Marketing
Paul D. Siebert, Ph.D. .................. 105,808 28,367(4) 20,000 38,666 6,678
Scientific Director
Anne M. Scholz .......................... 104,934 36,066(5) -- 36,000 6,985
Director of Product and Business
Development
</TABLE>
- ------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites and
other personal benefits constitutes less than the lesser of $50,000 or 10%
of the total annual salary and bonus for the Named Executive Officer for the
fiscal year.
(2) Represents deferred compensation earned during the year ended December 31,
1998.
(3) Includes insurance premiums and 401(k) matching contributions by Clontech.
(4) Includes a $4,175 bonus for publication.
(5) Includes a $1,000 bonus for five years of service.
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<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the year ended December 31, 1998, certain
information regarding options granted to, and held at year end by, the Named
Executive Officers:
OPTION GRANTS IN FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
---------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR(%)(2) PER SHARE(3) DATE 5% 10%
- ----------------------------------------- ----------- --------------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenneth S. Fong, Ph.D.................... -- -- -- -- -- --
Paul H. Kao.............................. 33,806 3.8% $ 6.00 1/2008 $ $
26,666 3.0 9.00 7/2008
Carol Casals Lou......................... 18,666 2.1 6.00 1/2008
20,000 2.3 9.00 7/2008
Paul D. Siebert, Ph.D.................... 18,666 2.1 6.00 1/2008
20,000 2.3 9.00 7/2008
Anne M. Scholz........................... 16,000 1.8 6.00 1/2008
20,000 2.3 9.00 7/2008
</TABLE>
- ------------------------
(1) The options listed in the table were granted under the 1997 Equity Incentive
Plan and vest over four years. See "--Employee Benefit Plans" for a
description of the material terms of these options.
(2) Based on an aggregate of 884,402 options granted to employees, consultants
and directors of Clontech in fiscal 1998, including the Named Executive
Officers set forth in the "Summary Compensation Table" above and directors
set forth in "Director Compensation" above.
(3) The exercise price is equal to 100% of the fair market value of the common
stock on the date of grant, as determined by the Board of Directors.
(4) Potential realizable value is based on the assumption that the common stock
of Clontech appreciates at the annual rate shown, compounded annually, from
the date of this prospectus until the expiration of the option. Stock price
appreciation of five percent and ten percent is assumed pursuant to rules
promulgated by the Securities and Exchange Commission and does not represent
our prediction of our stock price performance. The potential realizable
value is calculated by:
- multiplying the number of shares of common stock subject to a given option
by the assumed initial public offering price per share of $ ;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the option; and
- subtracting from that result the aggregate option exercise price.
40
<PAGE>
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 (#)(1) DECEMBER 31, 1998 (2)
-------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------------------------------------- -------------------------- -------------------------
<S> <C> <C>
Kenneth S. Fong, Ph.D......................................... --/-- --/--
Paul H. Kao................................................... 0/60,472 $ /$
Carol Casals Lou.............................................. 0/38,666
Paul D. Siebert, Ph.D......................................... 0/38,666
Anne M. Scholz................................................ 0/36,000
</TABLE>
- ------------------------
(1) The options listed in the table were granted under the 1997 Equity Incentive
Plan and vest over four years. See "--Employee Benefit Plans" for a
description of the material terms of these options.
(2) Based on the initial public offering price of $ , less the exercise
price, without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares
underlying the option.
No options were exercised during the year ended December 31, 1998, by the
Named Executive Officers.
EMPLOYEE BENEFIT PLANS
AMENDED AND RESTATED EQUITY INCENTIVE PLAN. In September 1997, the Board
adopted, and the stockholders approved, the 1997 Equity Incentive Plan (the
"Incentive Plan"). In July 1998, the Board and stockholders amended and restated
the Incentive Plan. We have reserved a total of 1,714,286 shares for issuance
under the Incentive Plan. The number of shares granted pursuant to stock bonuses
under the Incentive Plan shall at no time exceed 10% of the then current share
reserve. The Incentive Plan provides for grants of incentive stock options that
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to our employees (including officers and employee directors) or the
employees of any affiliate. Nonstatutory stock options, rights to acquire
restricted stock purchase awards, stock bonuses and stock appreciation rights
may be granted to employees (including officers), directors of and consultants
to Clontech or any affiliate. The Incentive Plan shall be administered by the
Board or a committee appointed by the Board; references herein to the Board
shall include any such committee. It is intended that the Incentive Plan will be
administered by the Compensation Committee, currently consisting of Gregory M.
Avis, Steven Goldby and David S. Lee, all of whom are "nonemployee directors"
under applicable securities laws and "outside directors," as defined under the
Code. The Board has the authority to determine to whom awards are granted, the
terms of such awards, including the type of award to be granted, the exercise
price, the number of shares subject to the award and the exercisability.
The term of a stock option granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board, but, in the case of an incentive stock option,
cannot be less than 100% of the fair market value of the common stock on the
date of grant. Options granted under the Incentive Plan vest at the rate
specified in the option agreement. Except as expressly provided by the terms of
a nonstatutory stock option agreement, no option may be transferred by the
optionee other than by will or the laws of descent or distribution or, in
certain limited instances, pursuant to a qualified domestic relations order,
provided that an optionee may designate a beneficiary who may exercise the
option following
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<PAGE>
the optionee's death. An optionee whose relationship with Clontech or any
affiliate ceases for any reason (other than due to death or permanent and total
disability) may generally exercise vested options in the three month period
following such cessation (unless such options terminate or expire sooner by
their terms) or in such longer or shorter period as may be determined by the
Board and set forth in the option agreement. Vested options may be exercised
during the twelve month period after an optionee's relationship with Clontech or
its affiliates ceases due to disability and for up to eighteen months after such
relationship with Clontech or its affiliates ceases due to death.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Clontech or its affiliates, unless the option
exercise price is at least 110% of the fair market value of the stock subject to
the option on the date of grant and the term of the option does not exceed five
years from the date of grant. In addition, the aggregate fair market value,
determined at the time of grant, of the shares of common stock with respect to
options which become exercisable by an optionee during any calendar year, may
not exceed $100,000. Any options, or portions thereof, which exceed this limit
are treated as nonstatutory options.
If Clontech becomes subject to Section 162(m) of the Code (which denies a
deduction to publicly held corporations for certain compensation paid to
specific employees in a taxable year to the extent that the compensation exceeds
$1,000,000), no person may be granted options under the Incentive Plan covering
more than 666,666 shares of common stock in any calendar year.
Shares subject to stock awards that have lapsed or terminated, without
having been exercised in full, and any shares repurchased by Clontech pursuant
to a repurchase option provided under the Incentive Plan may again become
available for the grant of awards under the Incentive Plan. Shares subject to
stock rights exercised in accordance with the Incentive Plan will not again
become available for the grant of awards under the Incentive Plan. In the event
of a decline in the value of our common stock, the Board of Directors has the
authority to offer optionees the opportunity to replace outstanding options with
new options for the same or a different number of shares. Both the original and
the new option will count towards Section 162(m), the per-person, calendar year
limitation set forth above.
Rights to acquire restricted stock granted under the Incentive Plan may be
granted subject to a repurchase option in favor of Clontech that will expire
pursuant to a vesting schedule. The purchase price of such awards will be at
least 85% of the fair market value of the common stock on the date of grant.
Stock bonuses may be awarded in consideration for past services without the
payment of a purchase price. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred other than by will, the laws of descent
and distribution or a qualified domestic relations order while the stock awarded
pursuant to such an agreement remains subject to the agreement, provided that a
holder of such rights may designate a beneficiary who may exercise the right
following the holder's death. Stock appreciation rights authorized for issuance
under the Incentive Plan may be tandem stock appreciation rights, concurrent
stock appreciation rights or independent stock appreciation rights.
Upon certain changes in control of Clontech, all outstanding stock awards
under the Incentive Plan may be assumed by the surviving entity or replaced with
similar stock awards granted by the surviving entity. If the surviving entity
does not assume such awards or provide substitute awards, then with respect to
persons whose service with Clontech or an affiliate has not terminated prior to
such change in control, the awards shall become fully vested and any Clontech
repurchase option or reacquisition right with respect to such persons shall
lapse along with any awards not exercised prior to such change in control.
As of February 9, 1999, 907 shares had been issued upon the exercise of
options granted under the Incentive Plan and options to purchase 846,261 shares
were outstanding with 867,118 shares reserved
42
<PAGE>
for future grants or purchases under the Incentive Plan. The Incentive Plan will
terminate in September 2007, unless terminated sooner by the Board. See Note 12
of notes to consolidated financial statements.
1998 EMPLOYEE STOCK PURCHASE PLAN. In July 1998, the Board adopted, and the
stockholders approved, the 1998 Employee Stock Purchase Plan (the "Purchase
Plan") covering an aggregate of 450,000 shares of common stock. The Purchase
Plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code. Under the Purchase Plan, the Board may
authorize participation by eligible employees, including officers, in periodic
offerings following the adoption of the Purchase Plan. No offering period will
last more than 27 months.
Employees are eligible to participate in the Purchase Plan if they are
employed by Clontech or its affiliates, for at least 20 hours per week, and for
at least five months per calendar year. Employees who own stock possessing five
percent of the total combined voting power or value of all classes of stock of
Clontech or any of its affiliates, or who would own such amount after rights to
purchase stock were granted under the Purchase Plan, are not eligible to
participate in the Purchase Plan. Employees who participate in an offering can
have up to 10% of their earnings withheld pursuant to the Purchase Plan but may
not purchase stock with an aggregate fair market value of more than $25,000
(measured on the commencement date of the offering) in any calendar year. The
amount withheld will then be used to purchase shares of the common stock on
specified dates determined by the Board. The price of common stock purchased
under the Purchase Plan will be equal to 85% of the lower of the fair market
value of the common stock on (i) the commencement date of each offering period
or (ii) on the specified purchase date. Employees may end their participation in
the offering at any time during the offering period. Participation ends
automatically on termination of employment with Clontech.
In the event of certain changes of control of Clontech, the Board has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right substituted by the successor corporation, or the Board
may shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Board has the authority to amend or terminate the Purchase Plan, at
its discretion, subject to the limitation that no such action may adversely
affect any outstanding rights to purchase common stock under the Purchase Plan.
See Note 12 of notes to consolidated financial statements.
As of January 31, 1999, no shares of common stock had been purchased under
the Purchase Plan.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. In July 1998, the Board
adopted, and the stockholders approved, the 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of common stock to non-employee directors of
Clontech. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee comprised of members of the Board.
The aggregate number of shares of common stock that may be issued pursuant
to options granted under the Directors' Plan is 200,000. Pursuant to the terms
of the Directors' Plan, each director of Clontech, who is not an employee of
Clontech (a "Non-Employee Director") upon the closing of this offering or who is
elected or appointed to be a Non-Employee Director after the closing of this
offering, shall automatically be granted an option to purchase 13,333 shares of
common stock upon the date of such closing or of such election or appointment
(an "Initial Grant"). In addition, each Non-Employee Director who continues to
serve as a Non-Employee Director of Clontech will automatically be granted an
option to purchase 6,666 shares of common stock on each anniversary of the
closing date of this offering (an "Annual Grant"), which amount shall be
pro-rated for any Non-Employee Director who has not continuously served as a
director for the 12 month period prior to such anniversary date. Each Initial
Grant and Annual Grant shall vest over a four year period measured from the
grant date.
43
<PAGE>
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date on which it was granted. The exercise
price of options under the Directors' Plan will equal the fair market value of
the common stock on the date of grant. A Non-Employee Director whose service as
a Non-Employee Director or employee of or consultant to Clontech or any
affiliate ceases for any reason other than due to death or permanent and total
disability may generally exercise vested options in the three month period
following such cessation (unless such options terminate or expire sooner by
their terms). Vested options may be exercised during the 12 month period after a
Non-Employee Director's service ceases due to disability and during the 18 month
period after such service ceases due to death. The Directors' Plan will
terminate in July 2008, unless earlier terminated by the Board. See Note 12 of
notes to consolidated financial statements.
As of January 31, 1999, no options to purchase common stock had been granted
pursuant to the Directors' Plan.
44
<PAGE>
CERTAIN TRANSACTIONS
SUMMIT SECURITIES PURCHASE AGREEMENT. Entities affiliated with Summit
Partners (collectively, "Summit Partners") and Clontech entered into a
Securities Purchase Agreement, dated September 9, 1997 (the "Summit Securities
Purchase Agreement"). Pursuant to this agreement, Clontech issued warrants to
Summit Partners to purchase 601,253 shares of common stock at an exercise price
of $8.32 per share. The shares exercisable under the warrants decrease each
month by 1/48(th) of 1.2% of the number of fully diluted shares of Clontech
common stock. The aggregate proceeds to Clontech upon the exercise of the
warrants is fixed; therefore, as the number of shares decreases with time, the
exercise price per share increases. As of February 9, 1999, the total number of
shares exercisable under these warrants had decreased to 542,967 with a
corresponding increase in the exercise price to $9.21 per share. In connection
with the Summit Securities Purchase Agreement, Clontech issued $6,000,000 in 12%
Subordinated Notes due September 9, 2004, to Summit Partners (the "Notes").
According to the terms of the Notes, on September 9th of each year, 50% of the
accrued interest as of such date is paid to Summit Partners and the remaining
50% is added to the principal.
SUMMIT STOCK PURCHASE AGREEMENT. Concurrent with the Summit Securities
Purchase Agreement, Kenneth S. Fong, Ph.D. sold 3,017,142 shares of common stock
at a price of $5.27 per share to Summit Partners.
INVESTOR RIGHTS AGREEMENT. Concurrent with the Summit Securities Purchase
Agreement, Clontech entered into an Investor Rights Agreement with Summit
Partners, pursuant to which Summit Partners has certain registration rights with
respect to its shares of Clontech common stock. See "Description of Capital
Stock--Registration Rights." In addition, pursuant to this agreement, Summit
Partners has the right to sell any and all shares of Clontech common stock owned
by Summit Partners to Clontech (the "Put Right"). The Put Right is triggered by
a merger, acquisition, dissolution, material default on the Notes, or the
initial public offering of Clontech's common stock. The Put Right expires on the
second anniversary of the closing of this offering. The Put Right may be
exercised by Summit Partners at a price per share equal to the product of the
market value of Clontech multiplied by the percentage of outstanding Clontech
common stock owned by Summit Partners. However, the price per share cannot be
lower than $5.27 plus 8% compounded annually. This offering will trigger the Put
Right; however, in connection with the offering Summit Partners has waived the
Put Right.
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. Concurrent with the Summit
Securities Purchase Agreement, Clontech and Dr. Fong entered into a Right of
First Refusal and Co-Sale Agreement with Summit Partners. Pursuant to this
agreement, if Dr. Fong proposes to transfer or sell any of his shares of
Clontech common stock to a third party, Summit Partners will first have the
right to purchase the shares Dr. Fong proposes to transfer or sell, subject to
certain exceptions. If Summit Partners does not exercise its right to purchase
the shares offered by Dr. Fong, Summit Partners may participate on a pro rata
basis in such transfer or sale to the third party. These rights will not apply
to this offering, and this agreement will terminate upon the closing of this
offering.
SHAREHOLDERS AGREEMENT. Concurrent with the Summit Securities Purchase
Agreement, Clontech and Dr. Fong entered into a Shareholders Agreement with
Summit Partners. During the term of this agreement, Dr. Fong shall vote his
shares of Clontech common stock in favor of the election of two individuals
nominated by Summit Partners to serve as members of Clontech's Board of
Directors. In addition, pursuant to this agreement, Dr. Fong granted Summit
Partners the right to sell any and all shares of Clontech common stock owned by
Summit Partners to Dr. Fong on the same terms and conditions as the Put Right.
This agreement and Summit Partners' right to sell its Clontech common stock
under this agreement will terminate upon the closing of this offering. In
45
<PAGE>
addition, pursuant to a Stock Pledge Agreement dated September 9, 1997, Dr. Fong
personally guaranteed the put he granted to Summit Partners by securing, as
collateral for its performance, all of his Clontech common stock. Upon the
expiration of this put, Dr. Fong's Clontech common stock will be released from
the pledge.
STOCK OPTION GRANTS. In July 1998, William W. Sims, Senior Vice President
and Chief Financial Officer, received an option to purchase 100,000 shares at an
exercise price of $9.00 per share with a five year vesting schedule. In April
and July 1998, Sarah J. Brashears, Director of Intellectual Property, received
options to purchase 6,000 shares and 7,333 shares at exercise prices of $7.13
and $9.00 per share, respectively, each with a four year vesting schedule. In
January 1998, Pamela P. Fong, an affiliate of Clontech, received an option to
purchase 30,400 shares at an exercise price of $6.60 with a four year vesting
schedule.
ASSET SALE. In February 1992, in connection with the sublease of certain
property by Clontech to IgX, Inc., Clontech sold certain leasehold improvements
and fixtures to Dr. Fong, in consideration for a promissory note in the
principal amount of $113,000 from Dr. Fong. Dr. Fong later sold these leasehold
improvements and fixtures to IgX, Inc., and, in August 1997, repaid the entire
promissory note.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of February 9, 1999, and as adjusted
to reflect the sale of the shares of common stock offered hereby by (i) each
person who we know owns more than 5% of our common stock, (ii) each of our
directors, (iii) each of our Named Executive Officers, and (iv) all of our
directors and executive officers as a group. Except as otherwise noted below,
the address of each person listed below is our address.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (1) FOLLOWING OFFERING (1)
-------------------------- ----------------------------
NUMBER PERCENT NUMBER OF NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF TOTAL SHARES OFFERED OF SHARES OF TOTAL
- ---------------------------------------------- ------------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Kenneth S. Fong, Ph.D. (2).................... 9,013,889 75.1%
Entities affiliated with Summit Partners
(3)......................................... 3,553,252 28.3%
Gregory M. Avis (3)(4)........................ 3,553,252 28.3%
Steven Goldby................................. 0 * 0 0 *
David S. Lee.................................. 0 * 0 0 *
Paul H. Kao (5)............................... 9,860 * 0 9,860 *
Carol Casals Lou (6).......................... 5,444 * 0 5,444 *
Paul D. Siebert, Ph.D. (7).................... 5,444 * 0 5,444 *
Anne M. Scholz (8)............................ 4,666 * 0 4,666 *
All directors and executive officers as a
group (11 persons) (9)...................... 12,595,763 100%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Beneficial ownership also
includes shares of stock subject to options and warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
February 9, 1999. Percentage of beneficial ownership is based on 12,000,907
shares of common stock outstanding as of February 9, 1999, and
shares of common stock outstanding after completion of this offering. Unless
otherwise indicated below, to our knowledge, all persons listed above have
sole voting and investment power with respect to their shares of common
stock, except to the extent authority is shared by spouses under applicable
law.
(2) Includes 80,000 shares held in trust for the benefit of John Calvin Fong,
Dr. Fong's minor son. Dr. Fong disclaims beneficial ownership of these
shares. Also includes 8,866 shares of common stock issuable upon exercise of
stock options within 60 days granted to Pamela P. Fong, O.D., Dr. Fong's
spouse.
(3) Represents 2,762,852 shares held by Summit Ventures IV, L.P., 86,272 shares
held by Summit Investors III, L.P., 168,018 shares held by Summit
Subordinated Debt Fund II, L.P. Includes warrants to purchase up to 490,925
shares of Clontech common stock registered to Summit Ventures IV, L.P.,
15,330 shares of Clontech common stock registered to Summit Investors III,
L.P., and 29,855 shares of Clontech common stock registered to Summit
Subordinated Debt Fund II, L.P. exercisable within 60 days. The address for
the entities affiliated with Summit Partners is 499 Hamilton Avenue, Suite
200, Palo Alto, CA 94301.
47
<PAGE>
(4) Mr. Avis, a Director of Clontech, is a general partner of Summit Partners.
Mr. Avis disclaims beneficial ownership of shares held by the entities
affiliated with Summit Partners except to the extent of his proportionate
partnership interest therein.
(5) Represents 9,860 shares of common stock issuable upon exercise of stock
options within 60 days.
(6) Represents 5,444 shares of common stock issuable upon exercise of stock
options within 60 days.
(7) Represents 5,444 shares of common stock issuable upon exercise of stock
options within 60 days.
(8) Represents 4,666 shares of common stock issuable upon exercise of stock
options within 60 days.
(9) Includes 37,488 shares of common stock issuable upon exercise of stock
options within 60 days and includes 536,110 shares of common stock issuable
upon exercise of warrants within 60 days.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 50 million shares of common stock, par value $0.001, and 10 million shares of
preferred stock, par value $0.001.
We are currently subject to Section 2115 of the California Corporations Code
("Section 2115"). Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if the company meets certain requirements relating to its property,
payroll and sales in California, and if more than 50% of its outstanding voting
securities are held of record by persons having addresses in California. Among
other things, Section 2115 may limit our ability to elect a classified Board of
Directors. We will not be subject to Section 2115 if:
- we are qualified for trading as a national market security on the Nasdaq
National Market, and we have at least 800 stockholders as of the record
date of our most recent annual meeting, or
- we file a certificate during any income year showing that less than 50% of
our outstanding voting securities are held of record by persons having
addresses in California, or
- one of the other tests of Section 2115 is not met.
COMMON STOCK
Upon the closing of this offering, there will be shares of
common stock outstanding. The holders of common stock are entitled to one vote
for each share held of record on all matters submitted to a vote of our
stockholders. As long as we are subject to Section 2115, the holders of common
stock are entitled to cumulative voting rights with respect to the election of
directors. At such time or times as we are no longer subject to Section 2115,
the holders of common stock will not be entitled to cumulate voting rights with
respect to the election of directors, and as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
time and in such amounts as the Board of Directors may from time to time
determine. See "Dividend Policy." Upon liquidation, dissolution or winding up of
Clontech, holders of the common stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any then outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
PREFERRED STOCK
Pursuant to our amended and restated certificate of incorporation, the Board
of Directors will have the authority, without further action by the
stockholders, to issue up to 10 million shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by the stockholders. The issuance of preferred stock could
adversely affect the voting power of holders of common stock, and the likelihood
that such holders will receive dividend payments and payments upon liquidation
may have the effect of delaying, deferring or preventing a change in control of
Clontech, which could have a depressive effect on the market price of our common
stock. We have no present plan to issue any shares of preferred stock.
49
<PAGE>
REGISTRATION RIGHTS
Upon completion of this offering, of 3,560,109 shares of common stock
(including 542,967 shares issuable upon exercise of outstanding warrants) will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act. If we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders, the Holders will be entitled to notice of the registration and
will be entitled to include, at our expense, such shares therein. In addition,
certain of the Holders may require us, at our expense and on not more than two
occasions at any time beginning approximately six months from the date of the
closing of this offering, to file a registration statement under the Securities
Act, with respect to their shares of common stock, and we will be required to
use our best efforts to effect the registration, subject to certain conditions
and limitations. Further, the Holders may require us at our expense to register
their shares on Form S-3 when such form becomes available to us, subject to
certain conditions and limitations. Such rights shall terminate on the earlier
of September 9, 2004, or at such time as a Holder is able to sell all its shares
pursuant to Rule 144 in any 90 day period.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
We are subject to Section 203 of the Delaware General Corporation Law
("Section 203") regulating corporate takeovers. Section 203, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder
unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers, and 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 such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. See "Risk Factors--Anti-Takeover
50
<PAGE>
Provisions in Our Charter Documents and Delaware Law May Make it More Difficult
for a Third Party to Acquire Us."
Our amended and restated bylaws provide that candidates for director may be
nominated only by the Board of Directors or by a stockholder who gives written
notice to us no later than 60 days prior nor earlier than 90 days prior to the
first anniversary of the last annual meeting of stockholders. The Board may
consist of one or more members to be determined from time to time by resolution
of the Board. The Board currently consists of four members. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. Our amended and restated certificate of incorporation provides
that at such time as we are no longer subject to Section 2115, our amended and
restated certificate of incorporation will not allow cumulative voting at
stockholder meetings for election of directors. As a result, stockholders
controlling more than 50% of the outstanding common stock will be able to elect
the entire Board of Directors, while stockholders controlling less than 50% of
the outstanding common stock may not be able to elect any directors. Our amended
and restated certificate of incorporation also provides that during such time as
we are subject to Section 2115, a director may be removed with or without cause
by the affirmative vote of the holders of at least a majority of the then
outstanding shares of voting stock. At such time that we are no longer subject
to Section 2115, our amended and restated certificate of incorporation provides
that a director may be removed from office for cause by the affirmative vote of
a majority of the combined voting power of the then outstanding shares of stock
entitled to vote generally in the election of directors.
Our amended and restated certificate of incorporation requires that upon
completion of the offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Our amended and
restated certificate of incorporation also provides that the authorized number
of directors may be changed only by resolution of the Board of Directors. See
"Management--Executive Officers and Directors." Delaware law and these charter
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or our management, which could have a depressive effect on
the market price of our common stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation and amended and
restated bylaws contain certain provisions permitted under Delaware law relating
to the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as:
- for any breach of the director's duty of loyalty to Clontech or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for any acts under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws. In addition, we intend to
enter into separate indemnification agreements with our directors and executive
officers that provide such person indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. We believe that these provisions and agreements
will assist us in attracting and retaining qualified individuals to serve as
directors and officers.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Equiserve Limited
Partnership.
LISTING
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "CLON."
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, since no
shares will be available for sale shortly after this offering because of certain
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options and warrants. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act (an "Affiliate"). The remaining 12,543,874 shares of
common stock (including 542,967 shares issuable upon exercise of outstanding
warrants) held by existing stockholders are "restricted securities" as that term
is defined in Rule 144 under the Securities Act ("Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the Restricted Shares will be available
for sale in the public market as follows:
- no shares will be eligible for immediate sale on the date the registration
statement of which this prospectus is a part is declared effective;
- no shares will be eligible for sale prior to 90 days from the date the
registration statement of which this prospectus is a part is declared
effective; and
- 12,543,874 shares (including 542,967 shares issuable upon exercise of
outstanding warrants) will be eligible for sale upon the expiration of the
lock-up agreements described below, 180 days after the date the
registration statement of which this prospectus is a part is declared
effective.
LOCK-UP AGREEMENTS. All of our officers, directors, stockholders and option
holders have agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock, for a period of 180 days after the
date the registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner with the prior written
consent of BT Alex. Brown Incorporated.
RULE 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date the registration statement of which this prospectus is a
part is declared effective, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of our common stock then outstanding (which
will equal approximately shares immediately after this offering); or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
Clontech.
52
<PAGE>
RULE 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our Affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. No shares will
qualify as "144(k) shares" on the registrant statement of which this prospectus
is a part.
RULE 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than Affiliates,
who purchases or receives shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell such shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by Affiliates under Rule 144 without
compliance with its holding period requirements.
REGISTRATION RIGHTS. Upon completion of this offering, the holders of
3,560,109 shares of our common stock, or their transferees (including 542,967
shares issuable upon exercise of outstanding warrants), will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. See "Description of Capital Stock--Registration Rights."
Registration of such shares under the Securities Act would result in such shares
becoming freely tradable without restriction under the Securities Act (except
for shares purchased by Affiliates) immediately upon the effectiveness of such
registration.
STOCK OPTIONS. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering 2,363,379 shares of
common stock reserved for issuance under the Incentive Plan, the Purchase Plan
and the Directors' Plan. See "Management--Employee Benefit Plans." Such
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under such registration statements will, subject to Rule 144 volume limitations
applicable to Affiliates, be available for sale in the open market, beginning
180 days after the effective date of the registrant statement of which this
prospectus is a part.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, BT Alex. Brown
Incorporated, Hambrecht & Quist LLC and Lehman Brothers Inc., have severally
agreed to purchase from us and the selling stockholders the following respective
numbers of shares of common stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
BT Alex. Brown Incorporated.......................................................................
Hambrecht & Quist LLC.............................................................................
Lehman Brothers Inc...............................................................................
--------------
Total.........................................................................................
--------------
--------------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions. The underwriters are obligated to purchase all of the
shares of common stock offered hereby, other than those covered by the
overallotment option described below, if any of such shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to certain dealers at a price that represents a concession not in excess of $
per share under the public offering price. 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, the offering price and other
selling terms may be changed by the representatives of the underwriters.
We have granted to the underwriters an option, exercisable not later than 30
days after the effective date of the registration statement of which this
prospectus is a part, to purchase up to additional shares of our common
stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus. The underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the common stock offered hereby. To the extent that the underwriters
exercise such option, each of the underwriters will become obligated, subject to
certain conditions, to purchase approximately the same percentage of additional
shares of common stock as the number of shares of our common stock to be
purchased by it in the above table bears to , and we will be obligated,
pursuant to the option, to sell such shares to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer additional shares on the same terms as those on
which the shares are being offered.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
54
<PAGE>
Each of Clontech's officers, directors and stockholders, has agreed not to
offer, sell, contract to sell or otherwise dispose of or enter into any
transaction which is designed to, or could be expected to, result in the
disposition of any portion of any of our common stock for period of 180 days
after the effective date of the registration statement of which this prospectus
is a part without the prior written consent of BT Alex. Brown Incorporated. Such
consent may be given at any time without public notice. We have entered into a
similar agreement, except that we may issue, and grant options or warrants to
purchase, shares of common stock or any securities convertible into, exercisable
for or exchangeable for shares of common stock, pursuant to the exercise of
outstanding options and warrants and our issuance of options and stock granted
under the existing stock option and stock purchase plans. See "Shares Eligible
for Future Sale."
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with the offering, creating a short
position in our common stock for their own account. Additionally, to cover such
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters may also
reclaim selling concessions allowed to an underwriter or a dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities, and if
commenced, may end any of these activities at any time.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among the representatives of the underwriters and
Clontech. Among the factors to be considered in determining the public offering
price will be:
- our results of operations in recent periods;
- our present stage of development;
- the market capitalizations and stages of development of other companies
which we and the representatives of the underwriters believe to be
comparable to us;
- estimates of our business potential; and
- prevailing market conditions.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Latham & Watkins, Costa Mesa, California.
55
<PAGE>
EXPERTS
The consolidated balance sheets of Clontech Laboratories, Inc. as of
December 31, 1997 and 1998, and the consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998, included in this prospectus, have been included herein
in reliance upon the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of common stock offered
hereby. This prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule filed therewith. Certain
items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to Clontech and the common
stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedule filed therewith. Statements contained in this prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement, and the exhibits and schedule
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago
Illinois 60661 and Seven World Trade Center, 13(th) Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov. The Registration Statement, including all exhibits
thereto and amendments thereof, has been filed with the Commission through
EDGAR.
56
<PAGE>
CLONTECH LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent Accountants......................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Clontech Laboratories, Inc.
The stock split and authorization of preferred stock described in Note 16 to
the consolidated financial statements has not been consummated at February 18,
1999. When it has been consummated, we will be in a postition to furnish the
following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Clontech Laboratories, Inc. and its subsidiaries (the "Company") at December 31,
1997 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
February 12, 1999, except for
Note 16, for which the
date is , 1999
F-2
<PAGE>
CLONTECH LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 8,612 $ 13,280
Short-term investments................................................................... 246 254
Marketable securities.................................................................... 3,001 2,000
Accounts receivable, net of allowance for doubtful accounts of $93 and $284 at December
31, 1997 and 1998, respectively........................................................ 3,966 5,425
Inventories.............................................................................. 4,854 7,056
Prepaids and other current assets........................................................ 403 878
Deferred income taxes.................................................................... 1,063 1,909
--------- ---------
Total current assets................................................................. 22,145 30,802
Property and equipment, net................................................................ 7,349 7,054
Other assets............................................................................... 1,288 1,630
Deferred income taxes...................................................................... 256 577
--------- ---------
Total assets......................................................................... $ 31,038 $ 40,063
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................................ $ 508 $ 831
Accounts payable......................................................................... 4,836 3,853
Accrued expenses......................................................................... 2,011 4,184
Income taxes payable..................................................................... 851 1,289
Deferred revenue......................................................................... 598 1,928
--------- ---------
Total current liabilities............................................................ 8,804 12,085
Notes payable to stockholders.............................................................. 5,673 6,153
Long-term debt, net of current portion..................................................... 2,394 3,265
Other long-term liabilities................................................................ 1,056 1,297
--------- ---------
Total liabilities.................................................................... 17,927 22,800
--------- ---------
Commitments and contingencies (Notes 10 and 15)
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value
Authorized: 50,000 shares at December 31, 1997 and 1998; issued and outstanding: 12,000
shares at December 31, 1997 and 1998................................................. 1 1
Additional paid-in capital............................................................... 479 959
Accumulated other comprehensive income (loss)............................................ (11) 28
Deferred stock compensation.............................................................. -- (413)
Retained earnings........................................................................ 12,642 16,688
--------- ---------
Total stockholders' equity........................................................... 13,111 17,263
--------- ---------
Total liabilities and stockholders' equity......................................... $ 31,038 $ 40,063
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CLONTECH LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Trade sales.................................................................. $ 26,390 $ 35,409 $ 46,814
Contract research and development............................................ 774 1,393 997
--------- --------- ---------
27,164 36,802 47,811
--------- --------- ---------
COST OF REVENUES:
Cost of trade sales.......................................................... 6,512 10,647 14,186
Cost of contract research and development.................................... 774 1,105 759
--------- --------- ---------
7,286 11,752 14,945
--------- --------- ---------
Gross profit............................................................... 19,878 25,050 32,866
--------- --------- ---------
OPERATING EXPENSES:
Research and development..................................................... 3,684 5,085 7,014
Selling, general and administrative.......................................... 10,822 13,764 18,961
--------- --------- ---------
Total operating expenses................................................... 14,506 18,849 25,975
--------- --------- ---------
Operating income........................................................... 5,372 6,201 6,891
Interest income................................................................ 161 315 579
Interest expense............................................................... (219) (455) (1,145)
Other income (expense), net.................................................... 229 (22) 305
--------- --------- ---------
Income before provision for income taxes....................................... 5,543 6,039 6,630
Provision for income taxes..................................................... 2,102 2,366 2,584
--------- --------- ---------
Net income..................................................................... $ 3,441 $ 3,673 $ 4,046
--------- --------- ---------
--------- --------- ---------
Earnings per share:
Basic........................................................................ $ 0.29 $ 0.31 $ 0.34
--------- --------- ---------
--------- --------- ---------
Diluted...................................................................... $ 0.29 $ 0.30 $ 0.32
--------- --------- ---------
--------- --------- ---------
Shares used in computing earnings per share calculations:
Basic........................................................................ 12,000 12,000 12,000
--------- --------- ---------
--------- --------- ---------
Diluted...................................................................... 12,000 12,088 12,543
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CLONTECH LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER DEFERRED
-------------- PAID IN COMPREHENSIVE STOCK RETAINED
SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION EARNINGS TOTAL
------ ------ ---------- ------------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996........................ 12,000 $1 $-- -$- -- $ 5,528 $ 5,529
Translation adjustments........................... -- -- -- (21) -- -- (21)
Net income........................................ -- -- -- -- -- 3,441 3,441
------ ------ ----- ----- ------ -------- -------
Balance at December 31, 1996...................... 12,000 1 -- (21) -- 8,969 8,949
Issuance of warrants.............................. -- 479 -- -- -- 479
Translation adjustments........................... -- -- -- 19 -- -- 19
Change in unrealized loss on marketable
securities...................................... -- -- -- (9) -- -- (9)
Net income........................................ -- -- -- -- -- 3,673 3,673
------ ------ ----- ----- ------ -------- -------
Balance at December 31, 1997...................... 12,000 1 479 (11) -- 12,642 13,111
Deferred stock compensation....................... -- -- 480 -- $(480) -- --
Amortization of deferred stock compensation....... -- -- -- -- 67 67
Translation adjustments........................... -- -- -- 30 -- 30
Change in unrealized gain on marketable
securities...................................... -- -- -- 9 -- 9
Net income........................................ -- -- -- -- 4,046 4,046
------ ------ ----- ----- ------ -------- -------
Balance at December 31, 1998...................... 12,000 $1 $ 959 $ 28 $(413) $ 16,688 $17,263
------ ------ ----- ----- ------ -------- -------
------ ------ ----- ----- ------ -------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CLONTECH LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 3,441 $ 3,673 $ 4,046
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 1,017 1,248 1,652
Accretion of warrants............................................. -- 40 120
Amortization of deferred stock compensation....................... -- -- 67
Write-off of investments and intangibles.......................... -- 272 --
Provision for doubtful accounts................................... 7 (14) 191
Provision for excess and obsolete inventory....................... 218 222 953
Deferred taxes.................................................... (256) (851) (1,167)
Changes in operating assets and liabilities:
Accounts receivable............................................. (1,212) (879) (1,650)
Inventories..................................................... (2,292) (1,358) (3,155)
Prepaids and other assets....................................... 19 (1,027) (817)
Accounts payable................................................ 1,186 2,330 (983)
Accrued expenses and other long-term liabilities................ 1,136 1,132 2,774
Income taxes payable............................................ 400 451 438
Deferred revenue................................................ 320 278 1,330
Other........................................................... (17) 11 38
--------- --------- ---------
Net cash provided by operating activities....................... 3,967 5,528 3,837
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................................... (965) (5,359) (1,357)
Purchases of marketable securities.................................... (3,009) (3,000)
Maturities of marketable securities................................... 4,001
Maturities (purchase) of short-term investments....................... (238) -- (8)
Purchase of Clontech Laboratories GmbH................................ (220) -- --
--------- --------- ---------
Net cash used in investing activities........................... (1,423) (8,368) (364)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated debt........................... -- 6,000 --
Proceeds from issuance of notes payable............................... -- 1,000 1,500
Repayment of notes payable............................................ (581) (457) (305)
--------- --------- ---------
Net cash provided by (used in) financing activities............. (581) 6,543 1,195
--------- --------- ---------
Increase in cash and cash equivalents................................... 1,963 3,703 4,668
Cash and cash equivalents at beginning of year.......................... 2,946 4,909 8,612
--------- --------- ---------
Cash and cash equivalents at end of year................................ $ 4,909 $ 8,612 $ 13,280
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year......................................... $ 230 $ 179 $ 897
--------- --------- ---------
--------- --------- ---------
Income taxes paid during the year..................................... $ 2,097 $ 2,144 $ 3,191
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Valuation of warrants issued.......................................... $ 479
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY
Clontech Laboratories, Inc. ("Clontech" or the "Company") was incorporated
in California in March 1984 and reincorporated in Delaware in October 1998. The
Company develops, manufactures and markets products for life science research.
The products allow scientists to perform academic research and drug discovery
more rapidly and effectively. The Company sells its products primarily to
scientists within government and academic entities and pharmaceutical and
biotechnolgy companies. The Company also provides contract research and
development services to certain pharmaceutical companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
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.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of ninety days or
less from the date of purchase are considered to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consist of certificates of deposit with remaining
maturities between three months and less than one year. These investments are
stated at fair market value.
MARKETABLE SECURITIES
The Company's marketable securities are categorized as available-for-sale
securities, as defined by the Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Unrealized holding gains and losses are reflected as a net amount in a separate
component of stockholders equity until realized. For the purpose of computing
realized gains and losses, cost is identified on a specific identification
basis.
Available-for-sale securities consist of government bonds with maturities of
less than one year. Unrealized loss for the years ended December 31, 1997 and
1998, was $9,000 and $0, respectively.
INVENTORY
Inventories are stated at the lower of cost, using the average cost method,
or market.
F-7
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company purchases certain key components, including RNA and other
biological supplies, from a limited number of suppliers. For some of these
components, there are relatively few alternative sources of supply. Since the
Company may not be able to quickly establish additional or replacement suppliers
for many of the numerous components used in its products, the Company maintains
significant inventories.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the respective assets as
follows:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment....................................................... 3 to 5 years
Furniture, fixtures and office equipment...................................... 3 to 5 years
Motor vehicles................................................................ 5 years
</TABLE>
Amortization of leasehold improvements is computed using the shorter of the
remaining term of the Company's facilities lease or the estimated useful lives
of the improvements. Maintenance and repairs are charged to operations as
incurred.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product to the customer, net of
allowances for discounts and estimated returns which are also provided at the
time of shipment. Recognition of revenue on sales made to certain distributors,
under agreements allowing right of return, is deferred until products are sold
by the distributors.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising costs
were $1,382,000, $1,805,000 and $2,237,000 in 1996, 1997 and 1998, respectively.
INCOME TAXES
Income taxes are recorded under the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed on net income divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock options, warrants and other convertible securities. The following
is a reconciliation of the numerator (net income) and the
F-8
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
denominator (number of shares) used in the basic and diluted EPS calculations
(in thousands, except per share amounts).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Basic:
Net income................................................................... $ 3,441 $ 3,673 $ 4,046
--------- --------- ---------
Weighted average shares outstanding for the period........................... 12,000 12,000 12,000
--------- --------- ---------
Earnings per share........................................................... $ 0.29 $ 0.31 $ 0.34
--------- --------- ---------
--------- --------- ---------
Diluted:
Net income................................................................... $ 3,441 $ 3,673 $ 4,046
--------- --------- ---------
Weighted average shares outstanding for the period........................... 12,000 12,000 12,000
Common stock equivalents:
Stock options................................................................ -- -- 308
Warrants..................................................................... -- 88 235
--------- --------- ---------
Total common and common stock equivalent shares.............................. 12,000 12,088 12,543
--------- --------- ---------
Earnings per share............................................................. $ 0.29 $ 0.30 $ 0.32
--------- --------- ---------
--------- --------- ---------
</TABLE>
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
No. 130, "Reporting Comprehensive Income." The statement requires the disclosure
of comprehensive income and its components in a full set of general purpose
financial statements or on the statement of operations. Comprehensive income is
defined as net income plus revenues, expenses, gains and losses that, under
generally accepted accounting principles, are excluded from net income.
Comprehensive income is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Net income......................................................................... $ 3,441 $ 3,673 $ 4,046
Change in unrealized gain or loss on marketable securities....................... -- (9) 9
Foreign currency translation adjustments......................................... (21) 19 30
--------- --------- ---------
Comprehensive income............................................................... $ 3,420 $ 3,683 $ 4,085
--------- --------- ---------
--------- --------- ---------
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments including
cash, cash equivalents, accounts receivable, accounts payable and other accrued
liabilities approximate fair value due to their short maturities. Based on
borrowing rates currently available to the Company for loans with similar terms,
the carrying value of debt obligations approximates fair market value.
F-9
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents and
short-term investments, accounts receivable and operations in one industry
segment. Substantially all cash, cash equivalents, short-term investments are
maintained with several financial institutions in the United States. Deposits in
these banks may exceed the amount of insurance provided on such deposits.
Generally, these investments may be redeemed upon demand and, therefore, bear
minimal risk. The Company has not experienced any losses on its deposits of
cash, cash equivalents and short-term deposits.
The Company sells its products through its direct sales force in North
America and through distributors in Europe and Asia. The Company performs
ongoing credit evaluations of its customers and maintains an allowance for
potential credit losses. The allowance for noncollection of accounts receivables
is based upon the estimated collectibility of individual accounts. The Company
has not experienced significant losses to date.
FOREIGN CURRENCY ACCOUNTING
Exchange adjustments resulting from foreign currency transactions are
generally recognized in operations, whereas adjustments resulting from the
translation of financial statements are reflected as a separate component of
stockholders equity.
RECLASSIFICATIONS
Certain amounts in the financial statements have been reclassified to
conform with the current years presentation. These reclassifications had no
impact on previously reported total assets, liabilities, stockholders' equity,
operating income or net income.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes new standards of accounting and reporting
for derivative instruments and hedging activities. SFAS No. 133 requires that
all derivatives be recognized at fair value in the statement of financial
position and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999. Earlier application is allowed as of
the beginning of any quarter beginning after issuance. The Company does not
anticipate that the adoption of SFAS 133 will have a material impact on its
financial position or results of operations.
F-10
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories comprise (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Raw materials............................................................ $ 1,916 $ 2,862
Work-in-progress......................................................... 1,377 2,388
Finished goods........................................................... 1,561 1,806
--------- ---------
$ 4,854 $ 7,056
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment comprise (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Furniture, fixtures and office equipment................................ $ 2,726 $ 3,475
Motor vehicles.......................................................... 65 62
Machinery and equipment................................................. 4,177 4,896
Leasehold improvements.................................................. 4,975 4,747
--------- ---------
11,943 13,180
Less: Accumulated depreciation and amortization......................... (4,594) (6,126)
--------- ---------
$ 7,349 $ 7,054
--------- ---------
--------- ---------
</TABLE>
5. OTHER ASSETS
Other assets comprise (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred compensation investments.......................... $ 906 $ 1,297
Long-term deposits......................................... 247 197
Investments................................................ 100 100
Other...................................................... 35 36
--------- ---------
$ 1,288 $ 1,630
--------- ---------
--------- ---------
</TABLE>
The Company assesses the recoverability of its long-lived assets by
determining whether the amortization of the assets' net book value over their
remaining lives can be recovered through projected undiscounted future cash
flows. The Company wrote-off $157,000 of goodwill in 1997, related to the
acquisition of its German subsidiary in 1996, as the anticipated cash flows
indicated that the recoverability of the goodwill was not reasonably assured.
The Company also wrote-off $120,000 of investments in 1997 to reflect a decrease
in the carrying value of the assets.
F-11
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED EXPENSES:
Accrued expenses comprise (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Accrued payroll and related benefits..................................... $ 1,297 $ 1,579
Taxes payable............................................................ 208 369
Other accrued liabilities................................................ 506 2,236
--------- ---------
$ 2,011 $ 4,184
--------- ---------
--------- ---------
</TABLE>
7. NOTES PAYABLE TO STOCKHOLDERS
At December 31, 1998, the Company had notes payable to a shareholder of
$6,472,000 under 12% subordinated notes due September 2004. Under this
arrangement, the Company will pay one half of the annual accrued interest at the
end of each annual accrual period. The remaining one half of the accrued
interest for each period shall be treated as part of the principal amount of the
note. The outstanding principal will be repaid in September 2004 or earlier upon
a merger, acquisition, liquidation or sale of the Company's common stock in a
public offering pursuant to a registration statement under the Securities Act of
1933, as amended.
Notes payable to shareholders at December 31, 1998, consist of (in
thousands):
<TABLE>
<S> <C>
Subordinated notes bearing interest at 12% and payable in 2004...... $ 6,472
Discount on subordinated promissory notes related to warrants (Note
12)............................................................... (319)
---------
$ 6,153
---------
---------
</TABLE>
8. LINES OF CREDIT
In September 1998, the Company entered into a credit facility providing a $4
million revolving loan expiring in June 1999. At the option of the Company,
borrowings under the revolving loan bear interest at either LIBOR plus a margin
or the Adjusted Treasuries Rate plus a margin.
The Company may issue standby letters of credit or unsecured letters of
recommendation up to an aggregate of $2.5 million with the Bank of
Tokyo-Mitsubishi and its affiliates. The aggregate amount available to be drawn
under all outstanding letters of credit and unsecured letters of recommendation
and the aggregate amount of unpaid reimbursement obligations under drawn letters
of credit shall reduce, dollar for dollar, the maximum amount available under
the $4 million revolving loan.
The Company also has a revolver-to-term loan that provides a $2 million
revolving credit line. The revolver-to-term loan must be made before June 30,
1999, at which time all unpaid principal under the revolver-to-term loan shall
be converted to a term loan of sixty (60) months with a final maturity date of
June 30, 2004. At the option of the Company, borrowings under the revolver-to-
term loan bear interest at either LIBOR plus a margin or the Adjusted Treasuries
Rate plus a margin.
The credit facility requires the Company to maintain certain financial
ratios and covenants including the restriction of dividend payments and the
maintenance of a minimum cash balance on
F-12
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LINES OF CREDIT (CONTINUED)
hand of $3.0 million. At December 31, 1998, the Company was in compliance with
all covenants. No borrowings were outstanding under the credit facility at
December 31, 1998.
In April 1998, the Company's subsidiary in Japan entered into a credit
facility providing for a 65 million yen revolving loan ($573,000 at December 31,
1998) expiring in July 1999 with the Bank of Toyko-Mitsubishi. Borrowings under
the revolving loan bear interest at rates determined by the bank. The Company
had no outstanding borrowings at December 31, 1998.
9. LONG-TERM DEBT
Long-debt at December 31, 1998 consists of (in thousands):
<TABLE>
<S> <C>
Notes payable to bank bearing interest at bank's Adjusted Treasuries Rate plus
2.25% (7.47% at December 31, 1998), payable through December 2002................ $ 1,458
Notes payable to bank bearing interest at LIBOR plus 2.25% (7.75% at December 31,
1998), payable through June 2005................................................. 2,409
Loan payable to bank bearing interest at 5.5%, payable through February 2001....... 133
Capital lease obligations through 2003............................................. 96
---------
4,096
Less: Amounts due in one year...................................................... (831)
---------
$ 3,265
---------
---------
</TABLE>
Borrowings under both notes payable are collateralized by all of the
Company's accounts receivable, property, plant and equipment and inventories.
Notes payable are required to be repaid in monthly installments over 52 and 82
months.
The notes payable require the Company to maintain certain financial ratios
and covenants including maintenance of minimum working capital, limitations on
changes in capital structure and the restriction of dividend payments. At
December 31, 1998, the Company was in compliance with all covenants.
The Company also finances the purchase of certain fixed assets under capital
leases. The total principal outstanding at December 31, 1998, relating to assets
held under capital leases was $96,000.
At December 31, 1998, principal payments due under long-term debt are as
follows (in thousands):
<TABLE>
<S> <C>
1999....................................................... $ 831
2000....................................................... 816
2001....................................................... 748
2002....................................................... 757
2003....................................................... 366
Thereafter................................................. 578
---------
$ 4,096
---------
---------
</TABLE>
F-13
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS
LEASE COMMITMENT
The Company leases office facilities and office furniture and equipment
under operating leases expiring in various years through 2006.
The minimum future annual rental payments as of December 31, 1998, under the
leases are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 1,507
2000............................................................... 1,490
2001............................................................... 1,318
2002............................................................... 1,258
2003............................................................... 1,174
Thereafter......................................................... 2,493
---------
Total minimum lease payments..................................... $ 9,240
---------
---------
</TABLE>
Rent expense was $723,000, $679,000 and $1,332,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Federal
Current payable.............................................. $ 1,702 $ 2,588 $ 3,031
Deferred..................................................... (215) (735) (978)
State
Current payable.............................................. 502 622 617
Deferred..................................................... (40) (117) (102)
Foreign
Current payable.............................................. 153 8 103
Deferred..................................................... -- -- (87)
--------- --------- ---------
$ 2,102 $ 2,366 $ 2,584
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The Company's effective tax rate differs from the statutory income tax rate
as shown in the following schedule:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Tax provision at federal statutory rate............................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefits........................... 5.7 5.4 5.4
Research and development tax credit................................... (0.8) (3.2) (2.4)
Nondeductible expenses................................................ 2.0 1.5 2.0
Foreign sales corporation benefit..................................... (1.0) (4.1) (3.0)
Foreign taxes......................................................... -- 2.1 1.4
Other................................................................. (2.0) 3.5 1.6
--- --- ---
Effective tax rate.................................................. 37.9% 39.2% 39.0%
--- --- ---
--- --- ---
</TABLE>
The components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Deferred tax assets:
Depreciation expense................................................... $ 264 $ 369
Inventory reserves..................................................... 470 740
Deferred compensation.................................................. 420 419
Accrued vacation and bonus............................................. 285 199
Accrued legal.......................................................... 245 647
Accrued interest....................................................... -- 201
Other.................................................................. 99 249
--------- ---------
1,783 2,824
Deferred tax liabilities:
Inventory capitalization............................................... (464) (338)
--------- ---------
Net deferred tax assets.............................................. $ 1,319 $ 2,486
--------- ---------
--------- ---------
</TABLE>
Management has determined that no valuation allowance is required because
the Company has sufficient taxable income in carryback years to absorb items
deductible in the future for federal tax purposes and anticipates that its
estimated future taxable income will allow the deferred tax asset for state tax
purposes to be fully realizable in future years. The amount of the deferred tax
asset that is realizable could be reduced in the near term if actual results
differ significantly from estimates of future taxable income.
F-15
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY
EQUITY INCENTIVE PLAN
In September 1997, the stockholders approved the 1997 Equity Incentive Plan
(the "Incentive Plan"), thereby superseding the 1986 Incentive Stock Option Plan
and the 1991 Equity Incentive Plan. The Incentive Plan provides for grants of
incentive stock options to employees, and non-statutory stock options to
employees and consultants. Terms for exercising options are determined by the
Board of Directors, and options expire at the earlier of the term provided in
the Notice of Grant or upon termination of employment or consulting
relationship.
A total of 1,714,000 shares of the Company's common stock were reserved for
issuance under the Incentive Plan. Options granted under the Plan are granted at
the fair market value of the Company's common stock on the date of grant and
expire 10 years from the date of grant or at termination of service, whichever
occurs first. The options generally are exercisable beginning one year from the
date of grant and generally vest over a four or five year period.
A summary of the Company's option activity is set forth below (in thousands,
except per share data):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES AVAILABLE NUMBER OF PRICE PER WEIGHTED AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
----------------- --------------- ------------------ -------------------
Balance, December 31, 1997................ -- --
Options authorized...................... 1,714
Options granted......................... (884) 884 $ 6.00 - $11.25 $ 7.57
Options canceled........................ 37 (37) $ 6.00 - $11.25 6.55
----- --- ------------------ -----
Balance, December 31, 1998................ 867 847 $ 6.00 - $11.25 $ 7.61
----- --- ------------------ -----
----- --- ------------------ -----
</TABLE>
The weighted average fair value of options granted during fiscal 1998 was
$1.43 per share.
The difference between the exercise price and fair market value of the
Company's stock options, totaling $480,000, has been recorded as deferred
compensation and a component of stockholders' equity. Of this amount, $67,000 of
compensation expense has been recognized through December 31, 1998. The
remaining $413,000 will be recognized as an expense as the options vest over a
period of four to five years.
F-16
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
The options outstanding and currently exercisable by exercise price under
the Option Plan at December 31, 1998, are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED
AVERAGE OPTIONS EXERCISABLE
RANGE OF REMAINING WEIGHTED --------------------------------
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------- --------------- -------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$6.00-6.60 385 9.08 years $ 6.05 -- $ --
$7.13 83 9.32 years 7.13 - -
$9.00 322 9.54 years 9.00 - -
$9.75-10.50 13 9.64 years 10.10 - -
$11.25 44 9.83 years 11.25 - -
--- -------------- -------
847 9.33 years $ 7.61
</TABLE>
STOCK COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123. Accordingly, no compensation cost has
been recognized for the Incentive Plan. Had compensation cost for the Incentive
Plan been determined based on the fair value at the grant date for the awards
consistent with the provisions of SFAS 123, the Company's net income and net
income per share for the years ended December 31, 1996, 1997 and 1998, would
have been reduced to the pro forma amounts indicated below (in thousands, except
per share data):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income:
As reported.................................................. $ 3,441 $ 3,673 $ 4,046
Pro forma.................................................... $ 3,441 $ 3,673 $ 3,855
Basic earnings per share:
As reported.................................................. $ .29 $ .31 $ .34
Pro forma.................................................... $ .29 $ .31 $ .32
Diluted earnings per share:
As reported.................................................. $ .29 $ .30 $ .32
Pro forma.................................................... $ .29 $ .30 $ .31
</TABLE>
The fair value of each option grant for the Incentive Plan is estimated on
the date of grant using the Black-Scholes multiple options pricing model with
the following weighted average assumptions by year:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Risk-free interest rate............................................................. 5.21%
Expected term of option from vest date.............................................. 4 years
Expected volatility................................................................. 0.00%
Expected dividend yield............................................................. $ 0.00
</TABLE>
F-17
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In July 1998, the 1998 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board of Directors. The Directors' Plan
provides for the automatic grant of options to purchase the Company's common
stock to the directors who are not employees of the Company. A total of 200,000
shares of common stock have been authorized for issuance under the Directors'
Plan. Each non-employee director who joins the board after the initial public
offering of the Company will automatically receive an option to purchase 13,333
shares of the Company's common stock. In addition, upon each anniversary of the
closing of the Company's initial public offering, each non-employee director
will be granted an option to purchase 6,666 shares of the Company's common
stock. The exercise price of options under the Directors' Plan will equal the
fair market value of the common stock of the Company on the date of grant. All
grants of stock options under the Directors' Plan shall vest over 48 months and
expire ten years from the date of grant. The Directors' Plan will terminate in
July 2008, unless earlier terminated by the board. As of December 31, 1998, no
options to purchase common stock have been granted pursuant to the Directors'
Plan.
EMPLOYEE STOCK PURCHASE PLAN
In July 1998, the Board adopted the Employee Stock Purchase Plan (the
"Purchase Plan"). A total of 450,000 shares of common stock have been reserved
for issuance under the Purchase Plan. The Purchase Plan provides for eligible
employees to have up to 10% of their earnings withheld pursuant to the Purchase
Plan. The amounts withheld will be used to purchase shares of the Company's
common stock at a price equal to 85% of the fair market value at certain
specified dates. Participation in the Purchase Plan automatically ends on
termination of employment with the Company. No shares have been issued under the
Purchase Plan.
WARRANTS
In connection with the notes payable to shareholder, the Company issued
warrants to purchase 601,000 shares of common stock. The shares under the
warrants decrease each month by 1/48(th) of 1.2% of the number of outstanding
shares of common stock on a fully diluted basis each month. As of December 31,
1998, the total number of shares exercisable under these warrants was 550,000.
The exercise price of the warrants increases month to month such that at any
time the warrant holders can exercise the unexpired warrants for a consideration
of $5,000,000 less any amounts already paid on previous warrant exercises. In
lieu of exercising the warrants by payment of cash, the warrantholder may elect
to receive shares of common stock computed under a formula defined in the
warrant agreement. The warrants expire in September 2001.
The fair value of these warrants of $479,000 was calculated based on the
Black-Scholes valuation model. The fair value has been reflected as additional
consideration for the subordinated debt, recorded as a discount on the debt and
accreted as interest expense to be amortized over the term of the subordinated
debt.
F-18
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RETIREMENT PLAN
The Company has a 401(k) profit plan (the "Plan") under which eligible
employees become participants of the Plan at the first entry date following 6
months of employment. The Company has the discretion to make contributions to
the Plan. For 1997 and 1998, the Company matched 10% and 50% of the
contributions made by their employees, respectively, up to a maximum of 3% of
the employee's total salary. The total contribution was $52,000 and $162,000
during the year ended December 31, 1997 and 1998, respectively.
The Company also has a nonqualified deferred compensation pension plan for
selected employees. The Company has recorded a liability in other long-term
liabilities of $1,297,000 at December 31, 1998, and has recorded compensation
expense of $275,000, $150,000 and $120,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
14. SEGMENT INFORMATION
The Company operates in one industry segment. One customer accounted for 10%
of net revenues in 1996, 1997 and 1998. The revenue to the customer in 1996 and
1997 was recognized in the United States segment (export sales from the United
States). The revenue to the customer in 1998 was recognized in the Japan
segment. International revenues, including export sales from the United States
and sales from foreign subsidiaries, accounted for approximately 30%, 33% and
36% of consolidated revenues for the years ended December 31, 1996, 1997 and
1998, respectively.
The following is a summary of the Company's geographic operations (in
thousands)(1):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales and other revenue:
United States..................................................... $ 24,787 $ 33,604 $ 36,661
Europe............................................................ 2,377 3,198 7,564
Japan............................................................. -- -- 3,586
--------- --------- ---------
Total revenues.................................................. $ 27,164 $ 36,802 $ 47,811
--------- --------- ---------
--------- --------- ---------
Export sales from the United States
(other than intercompany)......................................... $ 5,637 $ 8,906 $ 6,019
--------- --------- ---------
--------- --------- ---------
Operating income:
United States..................................................... $ 4,925 $ 6,681 $ 7,438
Europe............................................................ 447 (305) 856
Japan............................................................. -- (22) 239
Elimination....................................................... -- (153) (1,642)
--------- --------- ---------
Consolidated operating income................................... $ 5,372 $ 6,201 $ 6,891
--------- --------- ---------
--------- --------- ---------
Identifiable assets:
United States..................................................... $ 31,039 $ 39,599
Europe............................................................ 1,245 1,949
Japan............................................................. 188 1,656
Elimination....................................................... (1,434) (3,141)
--------- ---------
Consolidated identifiable assets................................ $ 31,038 $ 40,063
--------- ---------
--------- ---------
Long-lived assets:
United States..................................................... 8,683 9,225
Europe............................................................ 439 368
Japan............................................................. 106 26
Elimination....................................................... (335) (358)
--------- ---------
Consolidated........................................................ $ 8,893 $ 9,261
--------- ---------
--------- ---------
</TABLE>
- ------------------------------
(1) Information relating to Europe and Japan relates to the Company's
subsidiaries in those territories and information relating to the United
States includes exports to foreign distributors.
F-19
<PAGE>
CLONTECH LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. CONTINGENCIES
On December 31, 1996, the Company was served with a complaint filed by Life
Technologies, Inc. ("LTI") in the Federal District Court for the District of
Maryland. The complaint alleges three causes of action related to past sales of
products: direct patent infringement, inducement of third parties to infringe
LTI's patents by third parties and breach of a label license. The Company
believes that the allegations in the LTI complaint are without merit, and intend
to defend itself vigorously against each action. In addition, the Company filed
suit against LTI in the Federal District Court in the District of Delaware,
alleging false patent marking and violations of the Delaware Deceptive Trade
Practices Act. The Company cannot predict the outcome of either case. If LTI
succeeds in its lawsuit against the Company, the Company's business may be
adversely affected.
In the ordinary course of conducting business, the Company may be subjected
to loss contingencies arising from lawsuits. Management believes that the
outcome of such matters, if any, will not have a material impact on the
Company's financial position.
16. SUBSEQUENT EVENTS
In February 1999, the Company's Board of Directors authorized a
two-for-three reverse split of its common stock to be effective immediately
prior to the effectiveness of this offering. All share and per share data in the
accompanying consolidated financial statements have been retroactively restated
to reflect the stock split.
In July 1998, the Company's Board of Directors authorized the Company to
amend and restate its articles of incorporation in Delaware immediately prior to
the effectiveness of this offering. The amended articles of incorporation
authorize for issuance 10 million shares of Preferred Stock with a $0.001 par
value.
F-20
<PAGE>
DESCRIPTION OF ARTWORK APPEARING ON BACK INSIDE COVER:
Five boxes containing pictures of Clontech's kits, reagents, enzymes, and
membrane-based cDNA arrays. Above the picture boxes is a caption that reads:
"Over 1500 products that support life science research" Below the picture boxes
in the lower right corner is our name: CLONTECH
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 13
Dividend Policy................................ 13
Capitalization................................. 14
Dilution....................................... 15
Selected Consolidated Financial Data........... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 24
Management..................................... 36
Certain Transactions........................... 45
Principal and Selling Stockholders............. 47
Description of Capital Stock................... 49
Shares Eligible for Future Sale................ 52
Underwriting................................... 54
Legal Matters.................................. 55
Experts........................................ 56
Additional Information......................... 56
Index to Financial Statements.................. F-1
</TABLE>
--------------
DEALER PROSPECTUS DELIVERY OBLIGATION:
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
BT ALEX. BROWN
HAMBRECHT & QUIST
LEHMAN BROTHERS
, 1999
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All the amounts are estimates except for
the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee............................................... $ 20,461
Nasdaq National Market listing fee............................. 55,000
NASD filing fee................................................ 7,860
Blue sky qualification fees and expenses....................... 15,000
Printing and engraving expenses................................ 150,000
Legal fees and expenses........................................ 350,000
Accounting fees and expenses................................... 200,000
Transfer agent and registrar fees..............................
Directors' and Officers' Insurance............................. 175,000
Miscellaneous..................................................
---------
Total........................................................
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Delaware law, the Registrant's Amended and Restated
Certificate of Incorporation provides that no director of the Registrant will be
personally liable to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of duty of loyalty to the Company or to 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, or (iv) for any transaction from which the director derived an improper
personal benefit.
The Registrant's Amended and Restated Certificate of Incorporation further
provides that the Registrant must indemnify its directors and executive officers
and may indemnify its other officers and employees and agents to the fullest
extent permitted by Delaware law. The Registrant believes that indemnification
under its Amended and Restated Certificate of Incorporation covers negligence
and gross negligence on the part of indemnified parties.
The Registrant has entered into indemnification agreements with each of its
directors and officers. These agreements, among other things, require the
Registrant to indemnify such directors and officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of the Registrant, arising out of such person's services as a director or
officer of the Registrant, any subsidiary of the Registrant or any other company
or enterprise to which the person provides services at the request of the
Registrant.
The Underwriting Agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of the Registrant, its directors, its officers who sign the
Registration Statement, and the Registrant's controlling persons for certain
liabilities, including liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 18, 1996, the Registrant has sold and issued the following
unregistered securities:
(1) The Registrant has granted stock options to purchase 884,402 shares of
the Common Stock to employees, consultants and directors pursuant to its 1997
Equity Incentive Plan. Of these options, options to purchase 907 shares have
been exercised, 37,234 have been canceled and the remainder are outstanding.
(2) In September 1997, the Registrant issued warrants to purchase an
aggregate of 601,253 shares of the Common Stock of the Registrant to entities
affiliated with Summit Partners, for a weighted average exercise price of $8.32
per share, issuable upon exercise of the warrants. The shares exercisable under
the warrants decrease each month by 1/48th of 1.2% of the number of fully
diluted shares of Clontech common stock. The aggregate proceeds to Clontech upon
the exercise of the warrants is fixed; therefore, as the number of shares
decreases with time, the exercise price per share increases.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 of the Securities Act in that they were offered and sold either pursuant to
a written compensatory benefit plan or pursuant to a written contract relating
to compensation, as provided by Rule 701. The sales and issuances of securities
described in paragraph (2) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 4(2), Regulation D or Regulation S
promulgated thereunder.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) THE FOLLOWING IS A LIST OF EXHIBITS FILED AS A PART OF THIS REGISTRATION
STATEMENT:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Form of Restated Certificate of Incorporation of the Registrant to be effective upon the completion
of the offering.
3.3 Bylaws of the Registrant.
3.4 Form of Amended and Restated Bylaws of the Registrant to be effective upon the completion of the
offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen Stock Certificate.
4.3 Investor Rights Agreement, dated September 9, 1997.
4.4 Warrants to purchase Common Stock of the Registrant issued to Summit Partners.
4.5 Shareholders Agreement, dated September 9, 1997, by and between Summit Partners and Kenneth S. Fong.
4.6 Right of First Refusal and Co-Sale Agreement, dated September 9, 1997, by and between Summit Partners
and Kenneth S. Fong.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.7 Stock Pledge Agreement, dated September 9, 1997, by and between Summit Partners and Kenneth S. Fong.
5.1* Opinion of Cooley Godward LLP.
10.1 Form Indemnity Agreement.
10.2 Amended and Restated 1997 Equity Incentive Plan.
10.3 Amended and Restated 1998 Non-Employee Directors' Stock Option Plan.
10.4 1998 Employee Stock Purchase Plan.
10.5 Securities Purchase Agreement, dated September 9, 1997, by and between Summit Partners and
Registrant.
10.6 Promissory notes, dated September 9, 1997, by and between Summit Partners and Registrant.
10.7 Loan Agreement, dated September 1, 1998, by and between Union Bank of California, N.A. and
Registrant, including four promissory notes dated September 4, 1998.
10.8 Lease, dated September 15, 1994, between Registrant and California Pacific Commercial Corporation.
10.9 Lease, dated March 16, 1994, between Registrant and L. J. Valente.
10.10 Lease, dated May 1, 1998, between Registrant and L. J. Valente.
10.11 Lease, dated April 28, 1997, between Registrant and Teledyne Industries, Inc.
10.12* License Agreement, dated May 20, 1996, by and between BASF Bioresearch Corporation and Registrant.
10.13* Patent License Agreement, dated October 1, 1996, by and between F. Hoffman-La Roche Ltd., Roche
Molecular Systems, Inc. and Registrant.
10.14* Research, Development and Commercialization Agreement, dated September 11, 1998, by and between
Molecular Dynamics, Inc., a subsidiary of Amersham Pharmacia Biotech, Inc. and Registrant.
10.15* Distribution Agreement, dated November 13, 1998, by and between Macherey-Nagel GmbH & Co. KG and
Registrant.
10.16* Agreement, dated December 31, 1998, by and between Phase-1 Molecular Toxicology, Inc. and Registrant.
10.17* License Agreement, dated January 2, 1996, by and between Wayne M. Barnes, Ph.D and Registrant,
assigned by Dr. Barnes to Takara Shuzo Co., Ltd., April 25, 1996.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. See Signature Page.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(B) THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS INCLUDED HEREIN: SCHEDULE
II--VALUATION AND QUALIFYING ACCOUNTS
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus filed as part of the registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared effective, and
(2) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, in the City of Palo Alto, County of Santa
Clara, State of California, on the 17th day of February, 1999.
<TABLE>
<S> <C> <C>
CLONTECH LABORATORIES, INC.
By: /s/ KENNETH S. FONG
-----------------------------------------
Kenneth S. Fong
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Kenneth S. Fong
and William W. Sims, and each of them, his attorneys-in-fact, with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Registration Statement (including post-effective amendments), and any
and all Registration Statements filed pursuant to Rule 462 under the Securities
Act of 1933, as amended, in connection with or related to the offering
contemplated by this Registration Statement and its amendments, if any, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said Registration Statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed below by the following person in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President and Chief
/s/ KENNETH S. FONG Executive Officer
- ------------------------------ (Principal Executive February 17, 1999
Kenneth S. Fong Officer)
Senior Vice President and
/s/ WILLIAM W. SIMS Chief Financial Officer
- ------------------------------ (Principal Financial and February 17, 1999
William W. Sims Accounting Officer)
/s/ GREGORY M. AVIS
- ------------------------------ Director February 17, 1999
Gregory M. Avis
/s/ DAVID S. LEE
- ------------------------------ Director February 17, 1999
David S. Lee
/s/ STEVEN GOLDBY
- ------------------------------ Director February 17, 1999
Steven Goldby
</TABLE>
II-5
<PAGE>
CLONTECH LABORATORIES, INC.
SCHEDULE II--VALUATION & QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
ACCOUNT DESCRIPTION PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ---------------------------------------------------------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.............................. $ 100 $ 14 $ (7) $ 107
Year ended December 31, 1997.............................. 107 2 (16) 93
Year ended December 31, 1998.............................. 93 199 (8) 284
Reserve for excess & obsolete inventory:
Year ended December 31, 1996.............................. 174 390 (172) 392
Year ended December 31, 1997.............................. 392 387 (165) 614
Year ended December 31, 1998.............................. $ 614 $ 1037 $ (84) $ 1,567
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Form of Restated Certificate of Incorporation of the Registrant to be effective upon the completion
of the offering.
3.3 Bylaws of the Registrant.
3.4 Form of Amended and Restated Bylaws of the Registrant to be effective upon the completion of the
offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen Stock Certificate.
4.3 Investor Rights Agreement, dated September 9, 1997.
4.4 Warrants to purchase Common Stock of the Registrant issued to Summit Partners.
4.5 Shareholders Agreement, dated September 9, 1997, by and between Summit Partners and Kenneth S. Fong.
4.6 Right of First Refusal and Co-Sale Agreement, dated September 9, 1997, by and between Summit Partners
and Kenneth S. Fong.
4.7 Stock Pledge Agreement, dated September 9, 1997, by and between Summit Partners and Kenneth S. Fong.
5.1* Opinion of Cooley Godward LLP.
10.1 Form Indemnity Agreement.
10.2 Amended and Restated 1997 Equity Incentive Plan.
10.3 Amended and Restated 1998 Non-Employee Directors' Stock Option Plan.
10.4 1998 Employee Stock Purchase Plan.
10.5 Securities Purchase Agreement, dated September 9, 1997, by and between Summit Partners and
Registrant.
10.6 Promissory notes, dated September 9, 1997, by and between Summit Partners and Registrant.
10.7 Loan Agreement, dated September 1, 1998, by and between Union Bank of California, N.A. and
Registrant, including four promissory notes dated September 4, 1998.
10.8 Lease, dated September 15, 1994, between Registrant and California Pacific Commercial Corporation.
10.9 Lease, dated March 16, 1994, between Registrant and L. J. Valente.
10.10 Lease, dated May 1, 1998, between Registrant and L. J. Valente.
10.11 Lease, dated April 28, 1997, between Registrant and Teledyne Industries, Inc.
10.12* License Agreement, dated May 20, 1996, by and between BASF Bioresearch Corporation and Registrant.
10.13* Patent License Agreement, dated October 1, 1996, by and between F. Hoffman-La Roche Ltd., Roche
Molecular Systems, Inc. and Registrant.
10.14* Research, Development and Commercialization Agreement, dated September 11, 1998, by and between
Molecular Dynamics, Inc., a subsidiary of Amersham Pharmacia Biotech, Inc. and Registrant.
10.15* Distribution Agreement, dated November 13, 1998, by and between Macherey-Nagel GmbH & Co. KG and
Registrant.
10.16* Agreement, dated December 31, 1998, by and between Phase-1 Molecular Toxicology, Inc. and Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.17* License Agreement, dated January 2, 1996, by and between Wayne M. Barnes, Ph.D and Registrant,
assigned by Dr. Barnes to Takara Shuzo Co., Ltd., April 25, 1996.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. See Signature Page.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CLONTECH MERGER CORPORATION
I.
The name of the corporation is:
Clontech Merger Corporation
II.
The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington, 19801, County of New Castle; and the name of the
registered agent of the corporation in the State of Delaware at such address is
The Corporation Trust Company.
III.
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue one class of stock to be
designated, Common Stock ("Common Stock"). The total number of shares of
capital stock this corporation shall have authority to issue is Fifty Million
(50,000,000). The total number of shares of Common Stock this corporation shall
have authority to issue is Fifty Million (50,000,000). The Common Stock shall
have a par value of one tenth of one cent ($.001) per share.
V.
A. For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(1) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
(2) The Board of Directors or any individual director may be removed
from office at any time (i) with cause by the affirmative vote of the holders of
a majority of the voting power of all the then-outstanding shares of voting
stock of the corporation, entitled to vote at an
<PAGE>
election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of all the then-outstanding shares of the Voting
Stock.
(4) Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, and
notwithstanding the fact that some lesser percentage may be specified law, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering. Following the closing of
the Initial Public Offering no action shall be taken by the stockholders by
written consent.
(4) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
2
<PAGE>
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law or this
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal Articles V, VI, and VII.
VIII.
The name and mailing address of the sole incorporator is as follows:
Andrea R. Cohen
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
IN WITNESS WHEREOF, this Certificate has been subscribed this seventh day
of July, 1998, by the undersigned who affirms that the statements made herein
are true and correct.
/s/ Andrea R. Cohen
-------------------
Andrea R. Cohen
Sole Incorporator
3
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CLONTECH LABORATORIES, INC.
Kenneth S. Fong does hereby certify:
1. He is the President and Chief Executive Officer of Clontech
Laboratories, Inc., a corporation organized and existing under the
laws of the state of Delaware.
2. The original name of this corporation is Clontech Merger Corporation
and the original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on October 9, 1998.
3. The Certificate of Incorporation of this Corporation is hereby amended
and restated as follows:
I
The name of this corporation is Clontech Laboratories, Inc. (the
"Corporation" or the "Company")
II
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and
the name of the registered agent of the Corporation in the State of Delaware at
such address is The Corporation Trust Company.
III
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV
A. The 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 sixty
million (60,000,000) shares. Fifty million (50,000,000) shares shall be
Common Stock, each having a par value of one tenth of one cent ($0.001). Ten
million (10,000,000) shares shall be Preferred Stock, each having a par value
of one tenth of one cent ($0.001).
B. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate (a "Preferred Stock Designation") pursuant to the Delaware General
Corporation Law, to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions of any wholly unissued series of Preferred Stock,
and to establish from time to time the number of shares constituting any such
series or any of them; and to increase or decrease the number of shares of any
series subsequent to the issuance of shares of that series, but not below the
number of shares of such series then
1.
<PAGE>
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
V
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. (1) The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall be
fixed exclusively by one or more resolutions adopted by the Board of Directors.
(2) ELECTION OF DIRECTORS.
a. Directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting. Each director shall
hold office either until the expiration of the term for which elected or
appointed and until a successor has been elected and qualified, or until such
director's death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
b. (i) No person entitled to vote at an election for
directors may cumulate votes to which such person is entitled, unless, at the
time of such election, the Corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL") and is not a "listed" corporation or
ceases to be a "listed" corporation under Section 301.5 of the CGCL.
(ii) During such time or times that the corporation is
subject to Section 2115(b) of the CGCL and is not a "listed" corporation or
ceases to be a "listed" corporation under Section 301.5 of the CGCL, every
stockholder entitled to vote at an election for directors may cumulate such
stockholder'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 such
stockholder's shares are otherwise entitled, or distribute the stockholders
votes on the same principal among as many candidates as such stockholder thinks
fit. No stockholder, however, shall be entitled to so cumulate such
stockholder's votes unless (i) the names of such candidate or candidates have
been placed in nomination prior to the voting and (ii) the stockholder has given
notice at the meeting, prior to the voting, of such stockholder's intention to
cumulate such stockholder's votes. If any stockholder has given proper notice,
all stockholders may cumulate their votes for any candidates who have been
properly placed in nomination. The candidates receiving the highest number of
votes, up to the number of directors to be elected, are elected.
(3) REMOVAL OF DIRECTORS.
a. During such time or times that the Corporation is
subject to Section 2115(b) of the CGCL, subject to the rights of the holders of
any series of Preferred Stock and the limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time with
or without cause by the affirmative vote of the holders of at least a majority
of the then-outstanding shares of voting stock of the Corporation entitled to
vote at an election of directors (the "Voting Stock"), however, if less than the
entire Board is to be removed, no individual director may be removed without
cause if the votes cast against such director's removal, or not consenting in
writing to
2.
<PAGE>
such removal, would be sufficient to elect that director if then cumulatively
voted at an election of the entire Board of Directors.
b. Following the date which the Corporation is no longer
subject to Section 2115(b) of the CGCL, subject to the rights of the holders of
any series of Preferred Stock and any limitations imposed by law, Section A(3)a
above shall no longer apply and the Board of Directors or any individual
director may be removed from office at any time with cause by the affirmative
vote of the holders of a majority of the voting power of all then-outstanding
shares of Voting Stock and without cause by the affirmative vote of the holders
of sixty six and two-thirds percent (66 2/3%) of all then-outstanding shares of
Voting Stock.
(4) VACANCIES.
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211 of
the Delaware General Corporation Law.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
3.
<PAGE>
(2) The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in accordance
with the Bylaws prior to the closing of the Initial Public Offering and
following the closing of the Initial Public Offering no action shall be taken by
the stockholders by written consent.
(4) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
At any time or times that the corporation is subject to Section 2115(b) of the
CGCL, stockholders holding more than five percent (5%) of the outstanding shares
of the corporation shall have the right to call a special meeting of
stockholders as set forth in Article V, Section A. 4. c. herein.
(5) Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the CGCL) for breach of duty to the
corporation and its shareholders through bylaw provisions or through agreements
with the agents, or through shareholder resolutions, or otherwise, in excess of
the indemnification otherwise permitted by Section 317 of the CGCL, subject, at
any time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII
A. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote of the Voting Stock required by
4.
<PAGE>
law, this Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal Articles IV, V and VI.
The foregoing Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors.
The foregoing Amended and Restated Certificate of Incorporation has been
duly approved by the vote of the stockholders in accordance with Sections 242
and 245 of the Delaware General Corporation Law. The total number of
outstanding shares of the Corporation entitled to vote on the amendment was
________ shares of Common Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was more than 50% of the Common Stock.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5.
<PAGE>
I further declare under penalty of perjury under the laws of the state of
Delaware that the matters set forth in this Amended and Restated Certificate of
Incorporation are true and correct.
----------------------------------------
____________, 1999 Kenneth S. Fong
President and Chief Executive Officer
6.
<PAGE>
BYLAWS
OF
CLONTECH MERGER CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . .1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE III STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . .1
Section 4. Place Of Meetings. . . . . . . . . . . . . . . . . . . . .1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . .1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . .3
Section 7. Notice Of Meetings . . . . . . . . . . . . . . . . . . . .4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 9. Adjournment And Notice Of Adjourned Meetings . . . . . . .4
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . .5
Section 11. Joint Owners Of Stock. . . . . . . . . . . . . . . . . . .5
Section 12. List Of Stockholders . . . . . . . . . . . . . . . . . . .5
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . .5
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 15. Number And Term Of Office. . . . . . . . . . . . . . . . .7
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 17. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . .7
Section 18. Resignation. . . . . . . . . . . . . . . . . . . . . . . .7
Section 19. Removal. . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 20. Meetings . . . . . . . . . . . . . . . . . . . . . . . . .8
(a) Annual Meetings. . . . . . . . . . . . . . . . . . . . . .8
(b) Regular Meetings.. . . . . . . . . . . . . . . . . . . . .8
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . .8
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . .8
(e) Notice Of Meetings . . . . . . . . . . . . . . . . . . . .8
(f) Waiver Of Notice . . . . . . . . . . . . . . . . . . . . .8
Section 21. Quorum And Voting. . . . . . . . . . . . . . . . . . . . .9
1
<PAGE>
Section 22. Action Without Meeting . . . . . . . . . . . . . . . . . .9
Section 23. Fees And Compensation. . . . . . . . . . . . . . . . . . .9
Section 24. Committees . . . . . . . . . . . . . . . . . . . . . . . .9
(a) Executive Committee. . . . . . . . . . . . . . . . . . . .9
(b) Other Committees . . . . . . . . . . . . . . . . . . . . .9
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 25. Organization . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 26. Officers Designated. . . . . . . . . . . . . . . . . . . 11
Section 27. Tenure And Duties Of Officers. . . . . . . . . . . . . . 11
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Duties Of Chairman Of The Board Of Directors . . . . . . 11
(c) Duties Of President. . . . . . . . . . . . . . . . . . . 11
(d) Duties Of Vice Presidents. . . . . . . . . . . . . . . . 11
(e) Duties Of Secretary. . . . . . . . . . . . . . . . . . . 12
(f) Duties Of Chief Financial Officer. . . . . . . . . . . . 12
Section 28. Delegation Of Authority. . . . . . . . . . . . . . . . . 12
Section 29. Resignations . . . . . . . . . . . . . . . . . . . . . . 12
Section 30. Removal. . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION. . . . . . . . . . . . . . . . . . . 13
Section 31. Execution Of Corporate Instruments . . . . . . . . . . . 13
Section 32. Voting Of Securities Owned By The Corporation. . . . . . 13
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 13
Section 33. Form And Execution Of Certificates . . . . . . . . . . . 13
Section 34. Lost Certificates. . . . . . . . . . . . . . . . . . . . 14
Section 35. Transfers. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 36. Fixing Record Dates. . . . . . . . . . . . . . . . . . . 14
Section 37. Registered Stockholders. . . . . . . . . . . . . . . . . 15
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . 16
Section 38. Execution Of Other Securities. . . . . . . . . . . . . . 16
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
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Section 39. Declaration Of Dividends . . . . . . . . . . . . . . . . 16
Section 40. Dividend Reserve . . . . . . . . . . . . . . . . . . . . 16
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 41. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 17
Section 42. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents . . . . . . . . . . 17
(a) Directors and Executive Officers . . . . . . . . . . . . 17
(b) Other Officers, Employees and Other Agents . . . . . . . 17
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Enforcement. . . . . . . . . . . . . . . . . . . . . . . 18
(e) Non-Exclusivity Of Rights. . . . . . . . . . . . . . . . 18
(f) Survival Of Rights . . . . . . . . . . . . . . . . . . . 19
(g) Insurance. . . . . . . . . . . . . . . . . . . . . . . . 19
(h) Amendments . . . . . . . . . . . . . . . . . . . . . . . 19
(i) Saving Clause. . . . . . . . . . . . . . . . . . . . . . 19
(j) Certain Definitions. . . . . . . . . . . . . . . . . . . 19
ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 43. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Notice To Stockholders . . . . . . . . . . . . . . . . . 20
(b) Notice To directors. . . . . . . . . . . . . . . . . . . 20
(c) Affidavit Of Mailing . . . . . . . . . . . . . . . . . . 20
(d) Time Notices Deemed Given. . . . . . . . . . . . . . . . 20
(e) Methods Of Notice. . . . . . . . . . . . . . . . . . . . 21
(f) Failure To Receive Notice. . . . . . . . . . . . . . . . 21
(g) Notice To Person With Whom Communication Is Unlawful . . 21
(h) Notice To Person With Undeliverable Address. . . . . . . 21
ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 44. Amendments . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . 22
Section 45. Loans To Officers. . . . . . . . . . . . . . . . . . . . 22
</TABLE>
3
<PAGE>
BYLAWS
OF
CLONTECH MERGER CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
1
<PAGE>
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not later than the close
of business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such
2
<PAGE>
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person,
(B) the principal occupation or employment of such person, (C) the class and
number of shares of the corporation which are beneficially owned by such person,
(D) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than fifty percent (50%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of
3
<PAGE>
Section 7 of these Bylaws. If the notice is not given within sixty (60) days
after the receipt of the request, the person or persons requesting the meeting
may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; PROVIDED, HOWEVER, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the
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adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum
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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.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
consent has been given in accordance with Section 228 of the General Corporation
Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by
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the Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with rules of parliamentary
procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director.
SECTION 18. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 19. REMOVAL.
Subject to the rights of the holders of any series of Preferred Stock, the
Board of Directors or any individual director may be removed from office at any
time (i) with cause by the affirmative vote of the holders of a majority of the
voting power of all the then-outstanding
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shares of voting stock of the corporation entitled to vote at an election of
directors (the "Voting Stock") or (ii) without cause by the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
SECTION 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.)
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
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SECTION 21. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting, whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 24. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and
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shall have such powers and perform such duties as may be prescribed by the
resolution or resolutions creating such committees, but in no event shall any
such committee have the powers denied to the Executive Committee in these
Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 25. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
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ARTICLE V
OFFICERS
SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.
SECTION 27. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
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(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these Bylaws and other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 30. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
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ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or
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Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face
or back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or oter special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 35. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
SECTION 36. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which
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record date shall not be more than sixty (60) nor less than ten (10) days before
the date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to
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the interests of the corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be
from January 1 through December 31 of each year unless and until the Board of
Directors shall otherwise set the fiscal year by resolution.
ARTICLE XI
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; PROVIDED, HOWEVER, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, PROVIDED, FURTHER, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person
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to repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and
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as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
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(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to such stockholder's last known post office address as
shown by the stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
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(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
to such director in the manner above provided, shall not be affected or extended
in any manner by the failure of such stockholder or such director to receive
such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 44. AMENDMENTS.
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Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 45. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
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AMENDED AND RESTATED BYLAWS
OF
CLONTECH LABORATORIES, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . . . .5
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE II CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 3. Corporate Seal.. . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE III STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 4. Place Of Meetings. . . . . . . . . . . . . . . . . . . . . . . .5
Section 5. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 6. Special Meetings.. . . . . . . . . . . . . . . . . . . . . . . .7
Section 7. Notice Of Meetings.. . . . . . . . . . . . . . . . . . . . . . .7
Section 8. Quorum.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 9. Adjournment And Notice Of Adjourned Meetings.. . . . . . . . . .8
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 11. Joint Owners Of Stock. . . . . . . . . . . . . . . . . . . . . .8
Section 12. List Of Stockholders.. . . . . . . . . . . . . . . . . . . . . .8
Section 13. Action Without Meeting.. . . . . . . . . . . . . . . . . . . . .9
Section 14. Organization.. . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE IV DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 15. Number And Term Of Office. . . . . . . . . . . . . . . . . . . 10
Section 16. Powers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 17. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 18. Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 19. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 20. Meetings.. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . 11
(e) Notice Of Meetings . . . . . . . . . . . . . . . . . . . . . . 11
(f) Waiver Of Notice . . . . . . . . . . . . . . . . . . . . . . . 12
Section 21. Quorum And Voting. . . . . . . . . . . . . . . . . . . . . . . 12
Section 22. Action Without Meeting.. . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2.
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TABLE OF CONTENTS (CONTINUED)
<TABLE>
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PAGE
<S> <C>
Section 23. Fees And Compensation. . . . . . . . . . . . . . . . . . . . . 12
Section 24. Committees.. . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Executive Committee. . . . . . . . . . . . . . . . . . . . . . 12
(b) Other Committees . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 25. Organization.. . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 26. Officers Designated. . . . . . . . . . . . . . . . . . . . . . 14
Section 27. Tenure And Duties Of Officers. . . . . . . . . . . . . . . . . 14
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Duties Of Chairman Of The Board Of Directors . . . . . . . . . 14
(c) Duties Of President. . . . . . . . . . . . . . . . . . . . . . 14
(d) Duties Of Vice Presidents. . . . . . . . . . . . . . . . . . . 14
(e) Duties Of Secretary. . . . . . . . . . . . . . . . . . . . . . 14
(f) Duties Of Chief Financial Officer. . . . . . . . . . . . . . . 15
Section 28. Delegation Of Authority. . . . . . . . . . . . . . . . . . . . 15
Section 29. Resignations.. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 30. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 31. Execution Of Corporate Instruments.. . . . . . . . . . . . . . 15
Section 32. Voting Of Securities Owned By The Corporation. . . . . . . . . 16
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 33. Form And Execution Of Certificates.. . . . . . . . . . . . . . 16
Section 34. Lost Certificates. . . . . . . . . . . . . . . . . . . . . . . 16
Section 35. Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 36. Fixing Record Dates. . . . . . . . . . . . . . . . . . . . . . 17
Section 37. Registered Stockholders. . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION. . . . . . . . . . . . . . . . . 18
Section 38. Execution Of Other Securities. . . . . . . . . . . . . . . . . 18
ARTICLE IX DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 39. Declaration Of Dividends.. . . . . . . . . . . . . . . . . . . 18
</TABLE>
3.
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TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 40. Dividend Reserve.. . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 41. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XI INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 42. Indemnification Of Directors, Executive Officers,
Other Officers, Employees And Other Agents. . . . . . . . . . . . . . . . . . 19
(a) Directors And Officers . . . . . . . . . . . . . . . . . . . . 19
(b) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Non-Exclusivity Of Rights. . . . . . . . . . . . . . . . . . . 20
(e) Survival Of Rights . . . . . . . . . . . . . . . . . . . . . . 20
(f) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(h) Saving Clause. . . . . . . . . . . . . . . . . . . . . . . . . 20
(i) Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 43. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Notice To Stockholders . . . . . . . . . . . . . . . . . . . . 21
(b) Notice To Directors. . . . . . . . . . . . . . . . . . . . . . 22
(c) Affidavit Of Mailing . . . . . . . . . . . . . . . . . . . . . 22
(d) Time Notices Deemed Given. . . . . . . . . . . . . . . . . . . 22
(e) Methods Of Notice. . . . . . . . . . . . . . . . . . . . . . . 22
(f) Failure To Receive Notice. . . . . . . . . . . . . . . . . . . 22
(g) Notice To Person With Whom Communication Is Unlawful . . . . . 22
(h) Notice To Person With Undeliverable Address. . . . . . . . . . 22
ARTICLE XIII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 44. Amendments.. . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 45. Loans To Officers. . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
4.
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AMENDED AND RESTATED BYLAWS
OF
CLONTECH LABORATORIES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be
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timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not later than the close
of business on the one hundred twentieth (120th) day prior to the first
anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER, that
in the event that no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than thirty (30) days from the
date contemplated at the time of the previous year's proxy statement, notice
by the stockholder to be timely must be so received not later than the close
of business on the later of the one hundred twentieth (120th) day prior to
such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on
the corporation's books, of the stockholder proposing such business, (iii)
the class and number of shares of the corporation which are beneficially
owned by the stockholder, (iv) any material interest of the stockholder in
such business and (v) any other information that is required to be provided
by the stockholder pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice
as required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall
not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures
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prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within
sixty (60) days after the receipt of the request, the person or persons
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to
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transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the vote cast, excluding abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
PROVIDED, HOWEVER, that directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Where a separate vote by a class
or classes or series is required, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, a majority of the
outstanding shares of such class or classes or series, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by the
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of directors) of
the votes cast, including abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at
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least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not specified, at the place where the meeting is to be held.
The list shall be produced and kept at the time and place of meeting during the
whole time thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
consent has been given in accordance with Section 228 of the General Corporation
Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper
9.
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conduct of the meeting, including, without limitation, establishing an agenda or
order of business for the meeting, rules and procedures for maintaining order at
the meeting and the safety of those present, limitations on participation in
such meeting to stockholders of record of the corporation and their duly
authorized and constituted proxies and such other persons as the chairman shall
permit, restrictions on entry to the meeting after the time fixed for the
commencement thereof, limitations on the time allotted to questions or comments
by participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. Each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director.
SECTION 18. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 19. REMOVAL.
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(a) During such time or times that the corporation is subject to
Section 2115, subject to the rights of the holders of any series of Preferred
Stock and the limitations imposed by law, the Board of Directors or any
individual director may be removed from office at any time with cause by the
affirmative vote of the holders of at least a majority of the voting power of
all the then-outstanding shares of voting stock of the corporation, and at any
time without cause by the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66-2/3%), entitled to vote at an election of directors
(the "Voting Stock"); PROVIDED, HOWEVER, that unless the entire board is
removed, no individual director may be removed when the votes last against such
director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election at which
the same total number of votes 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 such director's most recent election were
then being elected.
(b) Following any date on which the corporation is no longer subject
to Section 2115(b) of the CGCL, subject to the rights of the holders of any
series of Preferred Stock and any limitations imposed by law, subsection (a) of
this Bylaw shall no longer apply. Subject to the rights of the holders of any
series of Preferred Stock and any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time with
cause by the affirmative vote of the holders of a majority of the voting power
of all then-outstanding shares of voting stock, and without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) outstanding share of Voting Stock.
SECTION 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24)
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hours before the date and time of the meeting, or sent in writing to each
director by first class mail, charges prepaid, at least three (3) days before
the date of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 21. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 24. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by
Delaware the
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General Corporation Law to be submitted to stockholders for approval, or
(ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death
or voluntary resignation from the committee or from the Board of Directors.
The Board of Directors may at any time for any reason remove any individual
committee member and the board of directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members
of the committee. the board of directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 25. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
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SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.
SECTION 27. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other
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duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 30. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant
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Secretary or Assistant Treasurer. All other instruments and documents requiring
the corporate signature, but not requiring the corporate seal, may be executed
as aforesaid or in such other manner as may be directed by the Board of
Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferenes and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
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representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 35. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 36. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
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(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from
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time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
Board of Directors shall think conducive to the interests of the corporation,
and the Board of Directors may modify or abolish any such reserve in the manner
in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; PROVIDED, HOWEVER, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, PROVIDED, FURTHER, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation law or (iv) such
indemnification is required to be made under subsection (d).
(b) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
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(c) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(e) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(f) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(g) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(h) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each
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director and executive officer to the full extent not prohibited by any
applicable portion of this Bylaw that shall not have been invalidated, or by any
other applicable law.
(i) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
21.
<PAGE>
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(C) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the
22.
<PAGE>
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate need not state that notice was not given to persons to whom notice
was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 44. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 45. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
23.
<PAGE>
CLONTECH LABORATORIES, INC.
INVESTOR RIGHTS AGREEMENT
dated as of
September 9, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. REGISTRATION RIGHTS.................................................1
1.1 Definitions................................................1
1.2 Request for Registration...................................2
1.3 Company Registration.......................................3
1.4 Obligations of the Company.................................3
1.5 Furnish Information........................................5
1.6 Expenses of Demand Registration............................5
1.7 Expenses of Company Registration...........................5
1.8 Underwriting Requirements..................................6
1.9 Delay of Registration......................................6
1.10 Indemnification............................................6
1.11 Reports Under the Exchange Act.............................8
1.12 Form S-3 Registration......................................9
1.13 Assignment of Registration Rights.........................10
1.14 Limitations on Subsequent Registration Rights.............10
1.15 "Market Stand-Off" Agreement..............................11
1.16 Termination of Registration Rights........................11
2. COVENANTS OF THE COMPANY...........................................11
2.1 Financial Statements and Other Information................11
2.2 Inspection of Property....................................13
2.3 Restrictive Covenants for Common Stock....................13
2.4 Affirmative Covenants.....................................15
2.5 Compliance with Agreements................................16
2.6 Preemptive Rights.........................................16
2.7 Put Rights................................................17
2.8 Key-Man Life Insurance....................................20
2.9 Proprietary Information Agreement.........................20
2.10 Board Matters.............................................20
2.11 Compensation Committee....................................21
2.12 401(k) Profit-Sharing Plan: Application for
Determination Letter......................................21
2.13 Public Disclosures........................................21
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
3. MISCELLANEOUS......................................................21
3.1 Successors and Assigns....................................21
3.2 Notices...................................................22
3.3 Expenses..................................................22
3.4 Amendments and Waivers....................................22
3.5 Severability..............................................22
3.6 Aggregation of Stock......................................22
3.7 Entire Agreement..........................................22
3.8 Titles and Subtitles......................................22
3.9 Governing Law.............................................23
3.10 Counterparts..............................................23
</TABLE>
ii.
<PAGE>
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of
September 9, 1997, by and among CLONTECH LABORATORIES, INC., a California
corporation (the "Company"), and the persons listed in Schedule A hereto (each,
an "Investor" and collectively, the "Investors"). Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned to them in
the Securities Purchase Agreement referred to below.
RECITALS:
WHEREAS, the Investors and the Company are parties to the Securities
Purchase Agreement of even date herewith (the "Securities Purchase Agreement")
providing for the issuance and sale to the Investors of (i) the Notes and (ii)
the Warrants to purchase shares of Common Stock, par value $.001 per share
("Common Stock"), of the Company; and
WHEREAS, the Investors and the majority shareholder of the Company are
parties to the Stock Purchase Agreement providing for the sale by such
shareholder to the Investors of the Common Shares; and
WHEREAS, in order to induce the Company to enter into the Securities
Purchase Agreement and to induce the Investors to invest funds in the Company
pursuant to the Securities Purchase Agreement, the Company and the Investors
hereby agree that this Agreement shall govern the rights of the Investors as to
the matters set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants set forth herein, the parties hereto agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes hereof:
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(including the rules and regulations thereunder and any successor statute, the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Shares
as defined in the Stock Purchase Agreement, (ii) the Common Stock of the Company
issued or issuable upon exercise of Warrants and (iii) 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, any securities
referred to in clause (i) or (ii) above, it being understood that for purposes
of this Agreement, any Person who holds Warrants (and who received such Warrants
in accordance with the restrictions on transfer contained in the Warrants) shall
be deemed to be the holder of Registrable Securities obtainable upon exercise of
such Warrants, such Registrable Securities
1.
<PAGE>
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Registrable Securities hereunder;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock then
outstanding that are Registrable Securities, and the number of shares of Common
Stock issuable pursuant to then exercisable, exchangeable or convertible
securities which would be Registrable Securities upon such issuance;
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission
("Commission") which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time following the
earlier of (i) December 31, 1999, or (ii) one hundred eighty (180) days after
the effective date of the first registration statement for a public offering of
Common Stock of the Company (other than a registration statement relating solely
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan), a written request from the Holders of a
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least ten percent (10%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated net proceeds to the Company of such offering
would equal or exceed $10,000,000), then the Company shall use its best efforts
to, within ten (l 0) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of subsection
1.2(b), effect as soon as practicable, subject to subsection 1.2(d), the
registration under the Securities Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 3.2.
(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 pan of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include such Holder's Registrable Securities
in such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the
2.
<PAGE>
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. 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.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration 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,
then the Company shall have the right to defer taking action with respect to
such filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; provided, however, that the Company may not
utilize this right more than once in any twelve month period.
1.3 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration of securities issued in connection with a merger or other business
combination effected by means of a registration statement on Form S-4, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.2, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 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 Commission a registration statement
with respect to such Registrable Securities and use its reasonable best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of
3.
<PAGE>
the Registrable Securities registered thereunder, keep such registration
statement effective for up to one hundred twenty (120) days; provided, however,
that such 120-day period shall be extended for a period of time equal to the
period the Holder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other
securities) of the Company.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its 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 Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder 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 registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public Offering, addressed to the underwriters, if any, and to the Holders
requesting registration
4.
<PAGE>
of Registrable Securities and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering addressed to the underwriters
and to the Holders requesting registration of Registrable Securities.
1.5 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 Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(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 subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 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, 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 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 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 pro rata based on the
number of shares of Registrable Securities each participating Holder has
requested to have registered), unless the Holders of a majority of the
Registrable Securities agree to forfeit their demand registration rights
pursuant to Section 1.2; provided further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request 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.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 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
counsel for the selling Holders selected by them, but excluding underwriting
discounts and commissions relating to the Registrable Securities.
5.
<PAGE>
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (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 can be
included in such offering taking into account marketing factors, 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 can be included in such offering taking into account
marketing factors (the securities so included to be apportioned pro rata among
the selling shareholders according to the total amount of securities entitled to
be included therein owned by each selling Holder or in such other proportions as
shall mutually be agreed to by such selling Holder) 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, unless such offering is the initial public offering of the Company, in
which case the selling shareholders may be excluded if no other shareholder's
securities are included. 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.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 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 Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (including any successor statute, the "Exchange Act"),
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, or the Exchange Act, or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or
6.
<PAGE>
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, or the Exchange Act or any state securities law;
and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, 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 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter,
or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities 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 Securities Act, or the Exchange Act, or
other federal or state law, insofar as' such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.10(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 1.10(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties 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
7.
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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 1.10 to the extent of
such prejudice, 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 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and of the indemnified party, on the other
hand, 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.
(e) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER THE EXCHANGE ACT. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission 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 Rule 144 under the Securities Act, 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 Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied
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with the reporting requirements of Rule 144 under the Securities Act (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Securities Act, and the Exchange Act (at
any time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration or pursuant to such
form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-3 is
not then 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 (before taking
into account any underwriters' discounts or commissions) of less than
$1,000,000; (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 seriously detrimental to the
Company and its shareholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than ninety (90)
days after receipt of the request of the Holder or Holders under this Section
1.12; provided, however, that the Company shall not utilize this right more than
once in any calendar year, (4) if the Company has, within the 120-day period
preceding the date of such request, already effected one (1) registration on
Form S-3 for the Holders pursuant to this Section 1.12; (5) as to any Holder, if
such Holder is then entitled to sell all of the Registrable Securities held by
such Holder within any three-month period under Rule 144 under the Securities
Act; or (6) 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, unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act.
(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
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soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively. All expenses, other than underwriting discounts and
commissions, incurred in connection With registrations, filings, or
qualifications pursuant to Section 1.12, 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 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 1.12 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 pro rata based on the number of
shares of Registrable Securities each participating Holder has requested to have
registered), unless the Holders of a majority of the Registrable Securities to
be registered agree to forfeit their registration rights pursuant to this
Section 1.12 for a period of six (6) months from the date of such withdrawal;
provided further, however, that if at the time of such withdrawal; the Holders
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request 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 all of their
rights pursuant to this Section 1.12.
1.13 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 or affiliated group of transferees or assignees of such securities who,
after such assignment or transfer, holds at least 452,572 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. 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.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2, 1.3 or 1.12 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
10.
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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 eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that,
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 the Company's initial firm-commitment underwritten
offering of Common Stock to the general public, 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 (including limited partners of any Holder) 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 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 covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-8 or similar forms which may be promulgated in the
future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any rights provided for in this Section 1 upon the earlier of (a)
seven (7) years after the date hereof, provided that such seven-year period
shall be extended for the length of time, if any, that the Company determines to
defer the filing of a registration statement pursuant to either Section 1.2(d)
or 1.12(b)(3) or (b) at the time as such Holder is entitled to sell all of the
Registrable Securities held by such Holder within a 90-day period under Rule 144
under the Securities Act (or a successor rule).
2. COVENANTS OF THE COMPANY.
2.1 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) The Company shall deliver to each Investor (so long as such
Investor beneficially owns any Securities, Common Shares or Warrant Shares) and
to each holder of at least 905,144 shares of Registrable Securities (each such
holder, a "Qualified Holder") (such number of shares to be adjusted
appropriately for subsequent stock splits, stock combinations, stock dividends
and like events):
(i) as soon as available but in any event within 30 days
after the end of each month in each fiscal year, unaudited consolidating and
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such month and from the
11.
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period from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such month, setting forth in each ease comparisons
to the Company's annual budget and to the corresponding period in the preceding
fiscal year, and all such statements shall be prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), consistently applied, except
that they may not contain full footnote disclosures and may be subject to normal
year-end adjustments for recurring accruals, and shall be certified by the chief
financial officer of the Company;
(ii) as soon as available but in any event within 90 days
after the end of each fiscal year, consolidating and consolidated statements of
income and cash flows of the Company and its Subsidiaries for such fiscal year,
and consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, setting forth in each case
comparisons to the Company's annual budget and to the preceding fiscal year, all
prepared in accordance with GAAP, consistently applied, and with respect to the
consolidated portions of such statements accompanied by an opinion containing no
exceptions or qualifications (except for qualifications regarding specified
contingent liabilities) of a "Big-Six" accounting firm selected by the Board of
Directors of the Company;
(iii) at least 30 days but not more than 90 days prior to
the beginning of each fiscal year, an annual budget and operating plan prepared
on a monthly basis for the Company and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows and balance sheets),
and promptly upon preparation thereof any revisions of such annual or other
budgets and operating plans, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, a
certificate of the President and chief financial officer of the Company setting
forth in reasonable detail the deviation and what actions the Company has taken
and proposes to take with respect thereto;
(iv) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Default or Event of Default
(each as defined in the Notes), any other material adverse change, event or
circumstance affecting the Company or any Subsidiary (including, without
limitation, the filing of any material litigation against the Company or any
Subsidiary or the existence of any dispute with any Person which involves a
reasonable likelihood of such litigation being commenced), a certificate of the
President and chief Financial officer of the Company specifying the nature and
period of existence thereof and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto; and
(v) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 2.1 may reasonably request.
The Company shall, upon request, prepare and deliver each of
the foregoing financial statements in such format, and by such electronic or
other means of transmission, as any Investor or Qualified Holder may reasonably
request.
12.
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(b) Each of the financial statements referred to in subsection
(a) above shall present fairly in all material respects the consolidated
financial condition, results of operations and cash flows of the Company and its
Subsidiaries in accordance with GAAP applied on a consistent basis as of the
dates and throughout the periods set forth therein, subject in the case of the
unaudited financial statements to changes resulting from normal year-end
adjustments for recurring accruals (none of which would, alone or in the
aggregate, be materially adverse to the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Company and its Subsidiaries taken as a whole).
(c) Except as otherwise required by law or judicial order or
decree or by any governmental agency or authority, each Person entitled to
receive information regarding the Company and its Subsidiaries under this
Section 2.1 or Section 2.2 below shall use the same standards and controls which
such Person uses to maintain the confidentiality of its own confidential
information (but in no event less than reasonable care) to maintain the
confidentiality of all nonpublic information of the Company or any of its
Subsidiaries obtained by it pursuant to this Section 2.1 or Section 2.2 below;
PROVIDED THAT each such Person may disclose such information in connection with
the sale or transfer of any Securities, Common Shares or Warrant Shares if such
Person's transferee agrees in writing to be bound by the provisions hereof.
(d) Notwithstanding the foregoing, the provisions of this Section
2.1 and Section 2.2 below shall cease to be effective while, and only so long
as, the Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and continues
to comply with such requirements.
2.2 INSPECTION OF PROPERTY. The Company shall permit any Investor and
its representatives (so long as that Investor beneficially owns any Securities,
Common Shares or Warrant Shares) or any Qualified Holder, upon reasonable notice
and during normal business hours and at such other times as any such Person may
reasonably request, to (a) visit and inspect any of the properties of the
Company and its Subsidiaries, (b) examine the corporate and financial records of
the Company and its Subsidiaries and make copies thereof or extracts therefrom
and (c) discuss the affairs, finances and accounts of any such entities with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries. The presentation of an executed copy of this Agreement by
any Investor or any Qualified Holder to the Company's independent accountants
shall constitute the Company's permission to its independent accountants to
participate in discussions with such Persons.
2.3 RESTRICTIVE COVENANTS FOR COMMON STOCK. So long as the
Investors and subsequent transferees of Common Shares beneficially own in the
aggregate at least 905,144 Common Shares (such number of shares to be adjusted
appropriately for subsequent stock splits, stock combinations, stock dividends
and like events), prior to the consummation of a Qualified IPO, the Company
shall not (in each case without the prior written consent of the holders of a
majority of the outstanding Common Shares):
13.
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(a) amend, waive or modify any provision of its Articles of
Incorporation in any manner that would adversely affect the rights, preferences
or privileges of the Common Stock;
(b) authorize, designate or issue, or obligate itself to
authorize or 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 Common Stock with respect to voting,
dividends or upon liquidation;
(c) declare or pay any dividend on or declare or make any other
distributions, direct or indirect, on any shares of Common Stock (other than
dividends or distributions payable solely in shares of Common Stock), or set
aside any sum for any such purpose;
(d) redeem, purchase or otherwise acquire (or pay into or set
aside any sum, as a sinking fund or otherwise, for such purpose) any share or
shares of Common Stock; provided, however, that this restriction shall not apply
to the repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation or any
subsidiary pursuant to agreements under which the Corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment;
(e) sell, convey, or otherwise dispose of or encumber all or any
material portion 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 transferred or
disposed of;
(f) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Common Stock;
(g) alter or change the rights or privileges of the shares of
Common Stock;
(h) liquidate or dissolve, or adopt any plan of liquidation,
dissolution or Winding up of the Corporation;
(i) effect any Internal Revenue Code Section 305 transaction;
(j) increase the authorized number of directors to a number
greater than seven (7);
(k) permit any of its Subsidiaries (other than wholly owned
Subsidiaries) to directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities other
than to the Company; or
(l) permit any of its Subsidiaries (other than wholly owned
Subsidiaries) to directly or indirectly redeem, purchase or otherwise acquire,
any of the
14.
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Company's or any of its Subsidiaries' capital stock or other equity securities
(including, without limitation, warrants, options and other rights to acquire
such capital or other equity securities), or directly or indirectly redeem,
purchase or make any payments with respect to any stock appreciation rights,
phantom stock plans or similar rights or plans.
2.4 AFFIRMATIVE COVENANTS. So long as the Investors and subsequent
transferees of Common Shares beneficially own in the aggregate at least 905,144
Common Shares (such number of shares to be adjusted appropriately for subsequent
stock splits, stock combinations, stock dividends and like events), the Company
shall and shall cause each Subsidiary to (unless it has received the prior
written consent of the holders of a majority of the outstanding Registrable
Securities prior to the consummation of a Qualified IPO:
(a) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses the
failure of which to maintain, preserve and renew have a Material Adverse Effect
were they not maintained;
(b) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted in all material respects at all times;
(c) pay and discharge (within 30 days after becoming due and
payable) all material taxes, assessments and governmental charges imposed upon
its properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all material
claims for labor, materials or suppliers which if unpaid would by law become a
Lien or Encumbrance upon any of its property, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with GAAP, consistently applied)
have been established on its books with respect thereto;
(d) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be expected to
have a material adverse effect upon the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Company and its Subsidiaries taken as a whole;
(e) use its best efforts to apply for and continue in force
adequate insurance covering risks of such types and in such amounts as are
customary for corporations of similar size engaged in similar lines of business
if available on commercially reasonable terms;
(f) use its best efforts to maintain the key-man life insurance
policy of the President of the Company as referred to in Section 2.8;
(g) possess and maintain all material Intellectual Property
Rights necessary to the conduct of their respective businesses and own all
right, title and interest in and to, or have a valid license for, all such
Intellectual Property Rights except to the extent that any challenge to the same
is being contested in good faith and by appropriate means; and
15.
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(h) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with GAAP subject to normal
and recurring year-end audit adjustments, consistently applied.
2.5 COMPLIANCE WITH AGREEMENTS. The Company shall perform and observe
all of its obligations to each holder of Securities, Conversion Shares and
Warrant Shares set forth in the Transaction Documents and the certificate of
incorporation and bylaws of the Company.
2.6 PREEMPTIVE RIGHTS.
(a) Except for issuances of Common Stock (i) to the Company's
employees, officers, directors and consultants pursuant to the Company's 1997
Equity Incentive Plan (in an aggregate amount not to exceed 2,571,429 shares,
such number of shares to be adjusted appropriately for subsequent stock splits,
stock combinations, stock dividends and like events), (ii) upon exercise of
Warrants, (iii) upon the exercise of warrants (in an aggregate amount not to
exceed 100,000 shares, such number of shares to be adjusted appropriately for
subsequent stock splits, stock combinations, stock dividends and like events),
issued in connection with the leasing of equipment and line of credit used in
the ordinary course of the Company's business, (iv) in connection with the
acquisition of another company or business as permitted under Section 2.3(h)
above or (v) pursuant to a Qualified IPO (as defined below), if the Company
authorizes the issuance or sale of any shares of Common Stock or any securities
containing options or rights to acquire any shares of Common Stock (other than
as a dividend on the outstanding Common Stock), or any other equity securities
of the Company or any securities exchangeable for or convertible into Common
Stock or such other equity securities, the Company shall first offer to sell to
each holder of Registrable Securities a portion of such stock or securities
equal to the quotient determined by dividing (1) the number of shares of
Registrable Securities and other Common Stock held by such holder by (2) the sum
of (x)the total number of shares of Registrable Securities and (y) the number of
shares of Common Stock outstanding which are not Registrable Securities and (z)
the number of shares issuable upon the exercise of outstanding Warrants and
options granted in accordance with the Company's 1997 Equity Incentive Plan as
currently in effect. Each holder of Registrable Securities shall be entitled to
purchase such stock or securities at the same price and on the same terms as
such stock or securities are to be offered or sold to any other Persons. The
purchase price for all stock and securities offered to the holders of the
Registrable Securities shall be payable in cash or, to the extent otherwise
provided by the terms of any such transaction, notes issued by such holders.
(b) In order to exercise its purchase rights hereunder, a holder
of Registrable Securities must within twenty (20) days after receipt of written
notice from the Company, describing in reasonable detail the stock or securities
being offered, the purchase price thereof, the payment terms, all other terms
and conditions for the Company's proposed issuance, and such holder's
proportionate allotment of such stock or securities, deliver a written notice to
the Company containing its election hereunder. If all of the stock and
securities offered to the holders of Registrable Securities is not fully
subscribed by such holders, the remaining stock and securities shall be
reoffered by the Company to the holders purchasing their full allotment upon the
terms set forth in this paragraph, except that such holders must exercise their
purchase rights
16.
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within five (5) days after receipt of such reoffer. Any holder of Registrable
Securities may assign its purchase rights hereunder to any of its Affiliates.
(c) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of the Registrable Securities have not elected to purchase during the sixty (60)
days following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 60-day period must be reoffered to the
holders of Underlying Common Stock pursuant to the terms of this paragraph.
(d) The preemptive rights set forth in this Section 2.6 shall
terminate upon the consummation of a Qualified IPO. For purposes hereof, a
"Qualified IPO" shall mean the Company's sale of its Common Stock in a bona fide
firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act in which (i) the public offering price per
share is at least twice the per share purchase price of the Common Shares under
the Stock Purchase Agreement (adjusted to reflect subsequent stock dividends,
stock splits or recapitalizations) and (ii) the aggregate proceeds to the
Company of such sale are at least $20,000,000 and (iii) all outstanding
indebtedness under the Notes is repaid in full.
2.7 PUT RIGHTS.
(a) At any time on or within two years after the earlier of (i)
the seventh anniversary of the Closing Date or (ii) the occurrence of a Put
Trigger Event (as defined below), the Investors and the Holders shall each have
the right to require the Company to purchase all or any Common Shares held by
the Investor or such holder at the Put Price determined as provided below (the
"Put Right") by delivering a written notice to the Company specifying the amount
of securities to be purchased (the "Put Notice"). Upon receipt of the Put
Notice, the Company shall give written notice of the exercise of the Put Right
to each other holder of Common Shares, and each such other holder shall have the
right, within ten days after receipt of such notice, to participate in such
exercise of the Put Right by delivering a written notice (the "Participation
Notice") to the Company specifying the amount of securities to be purchased. All
securityholders of the Company (including, as the case may be, any Investor)
participating in the exercise of the Put Right are referred to herein as the
"Participating Holders." The Company and its directors, officers and employees
shall use their best efforts to honor the Put Right, including, without
limitation by reappraising or revaluing the Company's assets to reflect the fair
market value of such assets so as to permit the payment in full of the Put
Price.
At such time as a majority in interest of the Investors and any
Qualified Holders have exercised the Put Right under this Section 2.7, all
Common Shares then outstanding shall be repurchased by the Company at the price
and upon the terms and conditions specified in this Section 2.7 for
Participating Holders exercising their Put Right.
(b) Upon the delivery of the Put Notice, the Company and the
Participating Holders shall in good faith promptly determine the Put Price as
provided hereunder, and within ten (10) days after the determination of the Put
Price the Company shall purchase and the Participating Holders shall sell the
amount of securities specified in the Put Notice and, as applicable, each
Participation Notice, at a mutually agreeable time and place (the "Put
Closing").
17.
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At the Put Closing, each Participating Holder shall deliver to the Company
certificates representing such holder's Common Shares to be purchased by the
Company, free and clear of all Liens and Encumbrances and duly endorsed in blank
or accompanied by duly executed forms of assignment (with signatures
guaranteed), and the Company shall deliver to each such Participating Holder the
Put Price payable to such Participating Holder as determined pursuant to
paragraph (c) immediately below. Notwithstanding the foregoing, unless the Put
Right is exercised following a Put Trigger Event, (i) not more than one-third
(1/3) of the Put Price per share shall be due or payable at any time prior to
each of the seventh, eighth and ninth anniversaries (respectively) of the date
hereof, and (ii) each Participating Holder shall be paid at the Put Closing the
maximum amount of the Put Price to which such Participating Holder is then
entitled, with any remainder being paid to the Participating Holder on the
eighth and/or ninth anniversaries hereof, in the maximum amounts provided in
clause (i). All amounts of the Put Price shall be paid by cashiers or certified
check or wire transfer of immediately available funds to an account designated
by each such Participating Holder.
(c) The Common Shares to be purchased by the Company from each
Participating Holder pursuant to the Put Right shall be purchased at a price
(the "Put Price") equal to the product of (i) the Market Value (as defined
below) of the Company, multiplied by (ii) a fraction, the numerator of which
shall be the number of each such Participating Holder's shares to be purchased
and the denominator of which shall be the total number of shares of Common Stock
then outstanding and the total number of shares of Common Stock issuable upon
conversion, exercise or exchange of all In-the-Money Options and Securities (as
defined below) as of the date the Put Price is determined hereunder.
Notwithstanding the foregoing, the "Put Price" attributable to any Common Shares
shall be equal to the greater of (x) the Put Price otherwise determined with
respect thereto pursuant to the immediately preceding sentence and (y) the
purchase price of such Common Shares under the Stock Purchase Agreement plus an
amount accruing thereon at the rate of 8% per annum from the date on which such
Common Shares are sold pursuant to the Stock Purchase Agreement to and including
the date on which such Common Shares are purchased by the Company pursuant to
the Put Right hereunder. The Market Value of the Company shall be determined
jointly by the Company and the Participating Holders. If such parties are unable
to reach agreement within a reasonable period of time (not to exceed 30 days),
the Market Value of the Company shall be determined by means of the following
procedure:
(i) The Company and the Participating Holders as a group
shall each select and retain an independent appraiser or firm experienced in
valuations of the type contemplated hereby. The Company and the Participating
Holders, respectively, shall bear the fees and expenses of their independent
appraiser or firm. As soon as practicable (and in any event within 30 days)
after being retained, each firm shall submit to the Company and the
Participating Holders a written report setting forth its determination of the
Market Value of the Company. In the event that the Market Value of the Company
as determined by the two firms is not identical but differs by less than ten
percent of the greater estimate, then the final Market Value shall be the
arithmetic mean of the different Market Values as determined by the two firms.
(ii) In the event that the Market Value of the Company as
determined by the two firms is not identical but differs by greater than ten
percent of the greater
18.
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estimate, then the two firms shall jointly select and retain, as soon as
practicable (and in any event within 15 days) thereafter, a third independent
appraiser or firm experienced in valuations of the type contemplated hereby. The
expenses of such third appraiser or firm shall be borne equally by the Company,
on the one hand, and the Participating Holders, on the other hand. As soon as
practicable (and in any event within 30 days) after being retained, such firm
shall submit to the Company and the Participating Holders a written report
setting forth its determination of the Market Value of the Company. The final
Market Value shall be the arithmetic mean of the Market Value as determined (A)
by the firm designated in accordance with this subparagraph (ii) and (B) the
Market Value as determined by whichever of the two firms designated in
accordance with subparagraph (i) immediately above is closest to the Market
Value as determined by the firm designated in accordance with this subparagraph
(ii).
(d) As used in this Section, the following terms have the
following respective meanings:
(i) "Market Value" means the fair market value of the
Company's entire common equity determined on a going concern basis as between a
willing buyer and a willing seller and taking into account all relevant factors
determinative of value, including, without limitation: (A) the aggregate
exercise or conversion price of all options, warrants and other securities
exercisable or exchangeable for or convertible into Common Stock at a price less
than what would otherwise be the fair market value of such Common Stock
(collectively, "In-the-Money Options and Securities") and (B) the effect on the
value of the common equity of the conversion of any In-the-Money Options and
Securities that constitute (or may be deemed to constitute) debt securities
which, upon conversion or exercise, would be removed from the Company's balance
sheet in accordance with GAAP, consistently applied. For purposes of determining
Market Value hereunder, no discount shall be applied to take into account any
lack of liquidity of the Common Stock or the size of the interest of any holder
or the fact that any such holder owns a minority interest in the Company.
(ii) "Put Trigger Event" shall be deemed to occur if: (A)
the Company enters into any agreement providing for, or the shareholders of the
Company approve, a merger or consolidation of the Company with or into any other
entity, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least two-thirds (2/3) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, (B)
the shareholders of the Company approve a plan of liquidation, dissolution or
winding up of the Company or an agreement for the sale or disposition (in one
transaction or a series of transactions) by the Company of all or any material
portion of the Company's assets and Properties, (C) the Company's sale of its
Common Stock in a bona fide firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act, or (D) the
Company or any material Subsidiary thereof makes an assignment for the benefit
of creditors or admits in writing its inability to pay its debts generally as
they become due; or an order, judgment or decree is entered adjudicating the
Company or any material Subsidiary thereof bankrupt or insolvent; or any order
for relief with respect to the Company or any material Subsidiary is entered
under the Federal Bankruptcy Code; or the Company or any material Subsidiary
makes any petition or
19.
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application to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of the Company or any material Subsidiary thereof or of
any substantial part of the assets of the Company or any such material
Subsidiary, or any proceeding (other than a proceeding for the voluntary
liquidation and dissolution of a material Subsidiary) is commenced relating to
the Company or any Subsidiary under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any material Subsidiary thereof
and either (x) the Company or any such material Subsidiary by any act indicates
its approval thereof, consent thereto or acquiescence therein or (y) such
petition, application or proceeding is not dismissed within 60 days.
(e) As consideration for the grant by the Company to the
Investors of the Put Right hereunder, and in addition to the mutual promises,
covenants and other good and valuable consideration provided in the Transaction
Documents (the receipt and sufficiency of which consideration is hereby
acknowledged), the Investors hereby pay to the Company, and the Company hereby
acknowledges receipt of payment of, an amount equal to $50,000.
(f) The right to exercise the Put Right hereunder shall terminate
upon the consummation of a Qualified IPO.
2.8 KEY-MAN LIFE INSURANCE. The Company will obtain as soon as
practicable hereafter, and so long as any Securities, Common Shares or Warrant
Shares remain outstanding, the Company shall maintain, from Financially sound
and reputable insurers, a life insurance policy in the amount of at least
$2,000,000 on the life of Dr. Kenneth Fong for so long as such individual
remains an employee of the Company. Such policy shall name the Company as the
primary loss payee and shall not be cancelable by the Company without the prior
approval of the Board of Directors.
2.9 PROPRIETARY INFORMATION AGREEMENT. The Company will cause each
officer and employee of the Company or any of its Subsidiaries to execute a
proprietary information and inventions agreement, in form and substance
reasonably satisfactory to the Investors, that provides for the confidential
treatment of the Intellectual Property Rights of the Company and its
Subsidiaries and the assignment to the Company of inventions developed in
connection with the performance of services for the Company or any of its
Subsidiaries.
2.10 BOARD MATTERS. As soon as practicable following the Closing, the
parties will use their best efforts to cause a person, who is not affiliated or
associated with the Company and who is mutually acceptable to the Company and
the Investors, to be duly elected or appointed to the Board of Directors of the
Company. The Company shall pay all expenses incurred by each director designated
by the Investors (or elected by the holders of Common Shares) in connection with
travelling to and attending meetings of the Board of Directors of the Company or
any committees thereof. So long as any director designated by the Investors (or
elected by the holders of Common Shares) serves on the Company's Board of
Directors, the certificate of incorporation and bylaws of the Company shall
provide for indemnification and exculpation of directors to the fullest extent
permitted under applicable law. Prior to its initial public offering, the
Company shall, at its expense, obtain directors' and officers' liability
20.
<PAGE>
insurance providing coverage for its directors and officers in an amount and
upon terms reasonably comparable to that for directors and officers of similarly
situated public companies.
2.11 COMPENSATION COMMITTEE. All salary, bonus, benefits and other
compensation paid or payable to officers of the Company or any of its material
Subsidiaries shall be determined by the Board of Directors of the Company, based
on recommendations of the Compensation Committee of the Board of Directors, and
shall be reasonably comparable to the levels of compensation paid to similarly
situated officers of other publicly-held companies in the industries in which
the Company operates. At all times prior to a Qualified IPO, the Compensation
Committee of the Board of Directors of the Company shall consist of three
members, including one member who is an officer of the Company, one member
selected by the Investors and one member who is an independent Director of the
Company. Following any Qualified IPO, the Investors shall continue to be
entitled to select one member of the Compensation Committee, so long as any of
them beneficially owns any Securities, Common Shares or Warrant Shares.
2.12 401(k) PROFIT-SHARING PLAN: APPLICATION FOR DETERMINATION LETTER.
As soon as practicable following the Closing the Company will file an
application for a determination letter with the Internal Revenue Service on Form
5307 (Application for Determination for Adopters of Master or Prototype, Reginal
Prototype or Volume Submitter Plans) for the Clontech Laboratories, Inc. 401(k)
Profit-sharing Plan in effect as of the date hereof.
2.13 PUBLIC DISCLOSURES. The Company shall not, nor shall it permit
any of its Subsidiaries to, disclose the name or identity of any Investor or any
Qualified Holder or any Affiliate of any of the same as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any Governmental Entity, without the prior written consent
of such Investor or such Qualified Holder or Affiliate, as the case may be,
unless such disclosure is required by applicable law or governmental regulations
or by order of a court of competent jurisdiction, in which case prior to making
such disclosure the Company shall give written notice to the affected Person
describing in reasonable detail the proposed content of such disclosure and
shall permit the affected Person to review and comment upon the form and
substance of. such disclosure.
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. 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. Notwithstanding anything herein
to the contrary, this Agreement is intended to confer upon Qualified Holders and
any subsequent transferee or holder of Common Shares the rights, remedies and
privileges applicable to such Persons as set forth in Section 2 hereof.
21.
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3.2 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 may at any time change its address/fax number for
notice by providing ten (10) days advance written notice to the other party),
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) one (1) day following sending by reputable overnight delivery
service or (iv) three (3) days following deposit with the United State Post
Office, by registered or certified mail, postage prepaid.
3.3 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.
3.4 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement maybe waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of at least two-thirds
(2/3) of the Registrable Securities then outstanding. The Investors acknowledge
and agree that any amendment or waiver effected in accordance with this Section
shall be binding upon all holders of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company, whether or not such holder in fact consented to such amendment or
waiver.
3.5 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.
3.6 AGGREGATION OF STOCK. For purposes of this Agreement, the term
"Investor" shall include any partner of the Investors who receives any
Securities, Common Shares, Warrant Shares or other Registrable Securities
pursuant to a distribution from or liquidation of any Investor, and all holdings
of Securities, Common Shares, Warrant Shares and other Registrable Securities by
Persons who are Affiliates of each other (which, for this purpose, shall also
include Persons which have received distributions of Securities, Common Shares
or Warrant Shares from a partnership holding such securities) shall be
aggregated for purposes of meeting any numerical or threshold tests or
determining the availability of any rights under this-Agreement.
3.7 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and-agreement between the parties with regard to the subjects
hereof and thereof.
3.8 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.
22.
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3.9 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.
3.10 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
23.
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IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
CLONTECH LABORATORIES, INC.
By: /s/ Kenneth Fong
---------------------------------
Kenneth Fong
President
SUMMIT VENTURES IV, L.P.
BY: Summit Partners IV, L.P.
Its General Partner
BY: Stamps, Woodsum & Co., IV
Its General Partner
BY: /s/ Gregory M. Avis
----------------------------
General Partner
SUMMIT INVESTORS III, L.P.
BY: /s/ Gregory M. Avis
----------------------------
General Partner
SUMMIT SUBORDINATED DEBT FUND II, L.P.
BY: Summit Partners SD II, LLC
Its General Partner
BY: /s/ Gregory M. Avis
----------------------------
General Partner
1.
<PAGE>
SCHEDULE A
LIST OF INVESTORS
Summit Ventures IV, L.P.
Summit Investors III, L.P.
Summit Subordinated Debt Fund II, L.P.
1.
<PAGE>
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR UNDER
SUCH ACT OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER AND IN
COMPLIANCE WITH STATE SECURITIES LAWS.
VOID AFTER SEPTEMBER 9, 2001
CLONTECH LABORATORIES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, SUMMIT INVESTORS III, L.P., or its
assigns (the "Warrantholder"), are entitled to purchase up to Twenty-Five
Thousand, Seven Hundred and Eighty-Nine (25,789) shares (the "Shares") of the
fully paid and nonassessable Common Stock ("Common Stock") of CLONTECH
LABORATORIES, INC., a California corporation (the "Company"), at the Exercise
Price provided herein. The Exercise Price and the number of Shares purchasable
hereunder are subject to adjustment as provided herein. This Warrant is issued
pursuant to the Securities Purchase Agreement, dated as of the date of this
Warrant, by and between the Company and the Warrantholder.
III. TERM.
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time and from time to time during the term commencing on
September 9, 1997 (the "Effective Date") and ending on September 9, 2001 at 5:00
p.m., Pacific time (the "Expiration Date").
IV. ADJUSTMENT OF SHARES.
In addition to any other adjustment required pursuant to paragraph 7
hereof, at the end of each thirty (30) day period ending after the Effective
Date and on or prior to the Expiration Date, (a) the aggregate number of Shares
which may be purchased pursuant to this Warrant shall be decreased by one
forty-eighth (1/48) of 1.2% of the total number of shares of Common Stock
outstanding on a fully diluted basis, and (b) the Exercise Price per share shall
be adjusted to an amount equal to the quotient obtained by dividing $142,970 by
the aggregate number of Shares which may be purchased pursuant to this Warrant
immediately after giving effect to the adjustment described in clause (a).
V. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
Subject to paragraph 1 hereof, the purchase right represented by this
Warrant may be exercised by the Warrantholder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Exhibit A duly executed) at the principal office of the Company and, subject to
paragraph 4 below, (i) by the payment to the Company, by certified or
1.
<PAGE>
official bank check, payable to the order of the Company, (ii) by cancellation
by the Warrantholder of indebtedness of the Company to the Warrantholder, or
(iii) by a combination of (i) and (ii), of an amount equal to the Exercise Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the rights represented by this Warrant, certificates for the
Shares so purchased shall be delivered to the Warrantholder within ten (10)
business days of receipt of this Warrant and such notice, together with the
applicable exercise price, and, unless this Warrant has been fully exercised or
expires, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to the Warrantholder within such ten (10) business day period. Upon
receipt by the Company of this Warrant and such notice of exercise form,
together with the applicable exercise price, the Warrantholder shall be deemed
to be the holder of record of the Shares, notwithstanding that certificates
representing the Shares shall not then be actually delivered to such
Warrantholder or that such Shares are not then set forth on the stock transfer
books of the Company.
VI. NET EXERCISE.
In lieu of exercising this Warrant by payment of the exercise price in
cash, the Warrantholder may elect to receive Shares equal to the value of this
Warrant (or the portion thereof being cancelled) by surrender of this Warrant
(with the cashless exercise form attached hereto as Exhibit B duly executed) at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Warrantholder hereof a number of
shares of the Company's Common Stock computed using the following formula:
Y (A - B)
X = ---------
A
Where
X is the number of shares of Common Stock to be issued
to the Warrantholder;
Y is the number of shares of Common Stock purchasable
under this Warrant;
A is the fair market value of one share of the
Company's Common Stock; and
B is the Exercise Price (as adjusted to the date of
such calculations).
For purposes of this paragraph 4, if the Shares are traded in a public
market, the fair market value of the Shares shall mean the average of the
closing bid and asked prices of the Shares quoted in the over-the-counter market
in which the Shares are traded or the closing price quoted on any exchange on
which the Shares are listed, whichever is applicable, as published in the
Western Edition of THE WALL STREET JOURNAL for the ten (10) trading days prior
to the date of determination of fair market value. If the Shares are not traded
in an over-the-counter market or on an exchange, the fair market value shall be
the price per share that the Company could obtain
2.
<PAGE>
from a willing buyer for Shares sold by the Company from authorized but
unissued shares, as such price shall be determined in the good faith reasonable
judgment of the Company's Board of Directors (including the affirmative) vote of
the Designees, as such term is defined in the Shareholders Agreement of even
date herewith by and among Kenneth Fong and certain Investors defined therein.
VII. STOCK FULLY PAID.
All Shares which may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable. Issuance of certificates for Shares upon the exercise of this
Warrant shall be made without charge to the Warrantholder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Warrantholder or in such
name or names as may be directed by the Warrantholder.
VIII. RESERVATION OF STOCK.
The Company covenants that during the term in which this Warrant is
exercisable, the Company will reserve from its authorized and unissued shares of
Common Stock a sufficient number of shares to provide for the issuance of all
shares of Common Stock issuable upon the exercise in full of this Warrant and,
from time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Common Stock issuable
upon exercise of the Warrant. The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
IX. CERTAIN ADJUSTMENTS.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
A. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Exercise
Price pursuant to this paragraph 7, the number of Shares of Common Stock
purchasable hereunder shall be adjusted to the product (rounded to the nearest
whole share) obtained by multiplying the number of Shares purchasable
immediately prior to such adjustment in the Exercise Price by a fraction, the
numerator of which shall be the Exercise Price immediately prior to such
adjustment and the denominator of which shall be the Exercise Price immediately
thereafter.
B. RECLASSIFICATION OR MERGER. In case of any reclassification or change
of outstanding securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is a continuing corporation
and which does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant), or in case of any sale of
all or any substantial portion of
3.
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the assets of the Company, the Company shall, as a condition precedent to such
transaction, execute a new Warrant or cause such successor or purchasing
corporation, as the case may be, to execute a new Warrant, providing the
Warrantholder upon such exercise the right to receive, in lieu of each Share
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of one Share. Such new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this paragraph 7. The provisions
of this subparagraph 7(b) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
C. SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Stock, the Exercise Price shall proportionately be decreased in the case of
a subdivision or increased in the case of a combination.
D. STOCK DIVIDENDS. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in Common Stock, or make any other distribution with respect to Common
Stock (except any distribution specifically provided for in subparagraph 7(b)
above) of Common Stock then in each such case the Exercise Price shall be
adjusted, from and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Exercise Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
E. ADDITIONAL STOCK. If the Company shall issue, after September 9, 1997
(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 Exercise Price in effect immediately prior to the issuance of such
Additional Stock, the Exercise Price in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause) be
adjusted to a price determined by multiplying such Exercise Price by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance on a fully diluted basis after
giving effect to the conversion, exercise or exchange of any and all outstanding
warrants, options, preferred stock and any other securities of the Company
convertible into or exercisable or exchangeable for Common Stock of the Company
("Fully Diluted Basis"), plus the number of shares of Common Stock that the
aggregate consideration received by the Corporation for such issuance would
purchase at such Exercise Price, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
on a Fully Diluted Basis plus the number of shares of such Additional Stock.
1. No adjustment of the Exercise Price for the Warrant shall be made
in an amount less than one cent ($0.01) 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 taken into account in any subsequent adjustment. Except to
the limited extent provided for in subsections 7(e)(iv)(C) and 7(e)(iv)(D), no
adjustment of such Exercise Price pursuant to this subparagraph
4.
<PAGE>
7(e) shall have the effect of increasing the Exercise Price above the Exercise
Price in effect immediately prior to such adjustment.
2. In the case of the issuance of any Additional 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 the Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
3. In the case of the issuance of any Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be equal to the reasonable, good faith estimate of the
fair market value thereof as evidenced by the affirmative vote of a majority of
the Board of Directors (which majority must include the Series A Directors)
irrespective of any accounting treatment.
4. 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 paragraph 7(e) and paragraph 7(f):
a. 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
7(e)(ii) and 7(e)(iii), if any, received by the Company 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.
b. 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 Company 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 received by the Company (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 7(e)(ii) and 7(e)(iii).
c. In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the Company upon exercise
of such options
5.
<PAGE>
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 Exercise Price of the Warrant, 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.
d. 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
Exercise Price of the Warrant, 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.
e. The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subsections 7(e)(iv)(A) and
7(e)(iv)(B) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either subsection 7(e)(iv)(C) or
7(e)(iv)(D).
F. "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to subsection 7(e)(4) by the Company after
the Effective Date other than
1. Common Stock issued pursuant to a transaction described in
paragraphs 7(c) or 7(d) hereof,
2. shares of Common Stock issuable or issued upon exercise of this
Warrant,
3. up to 2,571,429 shares of Common Stock issuable or issued to
employees, officers, consultants or directors of this Company directly or
pursuant to a stock option plan or restricted stock plan approved by the Board
of Directors of this Company (such number of shares to be calculated net of any
shares repurchased at cost by the Company in connection with the termination of
employment of an employee of the Company and proportionally adjusted to reflect
subsequent stock dividends, stock splits or recapitalizations), or
4. up to 1,000,000 shares of Common Stock issuable or issued upon
exercise of warrants to purchase Common Stock, which warrants are issued
pursuant to equipment leases, bank credit agreements or strategic joint ventures
or alliances approved by the Board of Directors of the Company.
G. OTHER DISTRIBUTIONS. In the event the Company shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights not referred to in subparagraphs 7(c) or 7(d), then, in each
such case for the purpose of this subsection (g), the Warrantholders shall be
entitled to a proportionate share of any such distribution as though they were
the holders
6.
<PAGE>
of the number of shares of Common Stock of the Company into which their shares
of the Warrants are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution. In the event that any other adjustment event not expressly
provided for by this Section 7 shall occur (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Shares obtainable
upon exercise of this Warrant so as to protect the rights of the Warrantholder.
H. NOTICES OF CERTAIN EVENTS. In case
(i) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of
all or substantially all of the assets of the Company to another corporation,
or
(iii) of any voluntary dissolution, liquidation of
winding up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Warrantholder a notice specifying, as the case may be, (A) the date on which a
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, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, 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 (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at least
twenty (20) days prior to the date therein specified. All such notices, advices
and communications shall be deemed to have been received (I) in the case of
personal delivery, on the date of such delivery and (II) in the case of mailing,
on the third business day following the date of such mailing.
X. NOTICE OF ADJUSTMENTS.
Whenever any Exercise Price shall be adjusted pursuant to paragraph 7
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Exercise Price or Prices after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage paid) to the Warrantholder.
7.
<PAGE>
XI. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in connection with any
exercise hereunder, 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.
XII. REPLACEMENT OF WARRANT.
On receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant and, in the case of loss,
theft, or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of mutilation,
on surrender and cancellation of this Warrant, the Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor and
amount.
XIII. REPRESENTATIONS AND WARRANTIES OF WARRANTHOLDER. Warrantholder hereby
represents and warrants that:
A. PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant and the Common Stock
issuable upon exercise hereof (collectively, the "Securities") will be acquired
for investment for the Warrantholder's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and the
Warrantholder has no present intention of selling, granting any participation
in, or otherwise distributing the same. The Warrantholder does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participation to any person with respect to any of the
Securities.
B. INVESTMENT EXPERIENCE. The Warrantholder acknowledges that it is able
to protect its own economic interests, 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 investment in this Warrant.
C. ACCREDITED INVESTOR. The Warrantholder is an "accredited investor"
within the meaning of Rule 501 of Regulation D of the Securities and Exchange
Commission (the "SEC"), as presently in effect.
D. RESTRICTED SECURITIES. Warrantholder 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 of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, the Warrantholder represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Act.
E. FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Warrantholder 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 paragraph 11, and:
8.
<PAGE>
1. 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; or
2. Such Warrantholder 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 if
reasonably requested by the Company, such Warrantholder 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 Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
(A) by a Warrantholder that is a partnership to a partner of such partnership or
a retired partner of such partnership who retires after the date hereof, (B) to
the estate of any such partner or retired partner or the transfer by gift, will
or intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse, or (C) by
a Warrantholder to an affiliate of such Warrantholder if the transferee agrees
in writing to be subject to the terms hereof to the same extent as if he or she
were an original Warrantholder hereunder.
XIV. RIGHTS OF STOCKHOLDERS. This Warrant shall not entitle the Warrantholder
to any voting rights or other rights as a shareholder of the Company.
XV. GOVERNING LAW.
This Warrant shall be governed by the internal laws of the State of
California, as applied to contracts between residents of California and to be
performed entirely within California, without regard to the application of
conflict of law rules.
XVI. MISCELLANEOUS.
A. The terms of this Warrant shall be binding upon and shall inure to the
benefit of any successors or assigns of the Company and of the holder or holders
hereof and of the Common Stock issued or issuable upon the exercise hereof, and
all of the obligations of the Company relating to the Common Stock issuable upon
exercise of this Warrant shall survive the exercise of this Warrant.
B. The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered Warrantholder hereof. All notices and other communications from
the Company to the Warrantholder shall be delivered personally or mailed by
first-class registered or certified mail, postage prepaid, to the address
furnished to the Company in writing by the last Warrantholder who shall have
furnished an address to the Company in writing and shall be deemed to have been
given when so delivered or mailed.
9.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
CLONTECH LABORATORIES, INC.
Date: September 9, 1997 By: /s/ Ken Fong
----------------------- -----------------------------------------
AGREED TO AND ACCEPTED TO BY:
WARRANTHOLDER
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
-----------------------------
General Partner
10.
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
Clontech Laboratories, Inc.
Attention: Corporate Secretary
The undersigned hereby elects to purchase _______________ (________) shares
of the Common Stock of Clontech Laboratories, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full, together with all applicable transfer taxes, if any.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
Please issue a certificate or certificates representing such shares of the
Common Stock in the name of the undersigned or in such other name as is
specified below:
WARRANTHOLDER:
--------------------------------------------
Date: By:
---------------------- ----------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Name In Which Shares Should Be Registered:
- ---------------------------------------
11.
<PAGE>
EXHIBIT B
CASHLESS EXERCISE FORM
(To be executed upon a Cashless Exercise of Warrant)
Clontech Laboratories, Inc.:
Attention: Corporate Secretary
The undersigned hereby irrevocably elects to surrender its Warrant for
________ shares of Common Stock or such lesser number of shares of Common Stock
as may be purchased pursuant to the Net Exercise provisions of the within
Warrant.
Please issue a certificate or certificates for such Common Stock in the
name of:
Name
--------------------------------------
(Please Print Name, Address and Social
Security No.)
Address
-------------------------------------
--------------------------------------------
--------------------------------------------
Social Security Number
Signature
----------------------------------
NOTE: The above signature should
correspond exactly with the name on
the first page of the Warrants or
with the name of the assignee.
And if said number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, a new Warrant of like tenor is to be
issued in the name of the undersigned for the balance remaining of the shares
purchasable thereunder.
12.
<PAGE>
EXHIBIT C
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Notes
and does hereby irrevocably constitute and appoint _________________________ to
make such transfer on the books of Clontech Laboratories, Inc., maintained for
the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
shares of stock to be issued upon exercise hereof or conversion thereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale.
Dated:
------------------------------
-----------------------------
Signature of Warrantholder
13.
<PAGE>
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR UNDER
SUCH ACT OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER AND IN
COMPLIANCE WITH STATE SECURITIES LAWS.
VOID AFTER SEPTEMBER 9, 2001
CLONTECH LABORATORIES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, SUMMIT VENTURES IV, L.P., or
its assigns (the "Warrantholder"), are entitled to purchase up to Eight
Hundred Twenty-Five Thousand, Eight Hundred and Sixty-Six (825,866) shares
(the "Shares") of the fully paid and nonassessable Common Stock ("Common
Stock") of CLONTECH LABORATORIES, INC., a California corporation (the
"Company"), at the Exercise Price provided herein. The Exercise Price and
the number of Shares purchasable hereunder are subject to adjustment as
provided herein. This Warrant is issued pursuant to the Securities Purchase
Agreement, dated as of the date of this Warrant, by and between the Company
and the Warrantholder.
III. TERM.
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time and from time to time during the term commencing on
September 9, 1997 (the "Effective Date") and ending on September 9, 2001 at 5:00
p.m., Pacific time (the "Expiration Date").
IV. ADJUSTMENT OF SHARES.
In addition to any other adjustment required pursuant to paragraph 7
hereof, at the end of each thirty (30) day period ending after the Effective
Date and on or prior to the Expiration Date, (a) the aggregate number of Shares
which may be purchased pursuant to this Warrant shall be decreased by one
forty-eighth (1/48) of 1.2% of the total number of shares of Common Stock
outstanding on a fully diluted basis, and (b) the Exercise Price per share shall
be adjusted to an amount equal to the quotient obtained by dividing $142,970 by
the aggregate number of Shares which may be purchased pursuant to this Warrant
immediately after giving effect to the adjustment described in clause (a).
V. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
Subject to paragraph 1 hereof, the purchase right represented by this
Warrant may be exercised by the Warrantholder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Exhibit A duly executed) at the principal office of the Company and, subject to
paragraph 4 below, (i) by the payment to the Company, by certified or
1.
<PAGE>
official bank check, payable to the order of the Company, (ii) by cancellation
by the Warrantholder of indebtedness of the Company to the Warrantholder, or
(iii) by a combination of (i) and (ii), of an amount equal to the Exercise Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the rights represented by this Warrant, certificates for the
Shares so purchased shall be delivered to the Warrantholder within ten (10)
business days of receipt of this Warrant and such notice, together with the
applicable exercise price, and, unless this Warrant has been fully exercised or
expires, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to the Warrantholder within such ten (10) business day period. Upon
receipt by the Company of this Warrant and such notice of exercise form,
together with the applicable exercise price, the Warrantholder shall be deemed
to be the holder of record of the Shares, notwithstanding that certificates
representing the Shares shall not then be actually delivered to such
Warrantholder or that such Shares are not then set forth on the stock transfer
books of the Company.
VI. NET EXERCISE.
In lieu of exercising this Warrant by payment of the exercise price in
cash, the Warrantholder may elect to receive Shares equal to the value of this
Warrant (or the portion thereof being cancelled) by surrender of this Warrant
(with the cashless exercise form attached hereto as Exhibit B duly executed) at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Warrantholder hereof a number of
shares of the Company's Common Stock computed using the following formula:
Y (A - B)
X = ---------
A
Where
X is the number of shares of Common Stock to be issued
to the Warrantholder;
Y is the number of shares of Common Stock purchasable
under this Warrant;
A is the fair market value of one share of the
Company's Common Stock; and
B is the Exercise Price (as adjusted to the date of
such calculations).
For purposes of this paragraph 4, if the Shares are traded in a public
market, the fair market value of the Shares shall mean the average of the
closing bid and asked prices of the Shares quoted in the over-the-counter market
in which the Shares are traded or the closing price quoted on any exchange on
which the Shares are listed, whichever is applicable, as published in the
Western Edition of THE WALL STREET JOURNAL for the ten (10) trading days prior
to the date of determination of fair market value. If the Shares are not traded
in an over-the-counter market or on an exchange, the fair market value shall be
the price per share that the Company could obtain
2.
<PAGE>
from a willing buyer for Shares sold by the Company from authorized but
unissued shares, as such price shall be determined in the good faith reasonable
judgment of the Company's Board of Directors (including the affirmative) vote of
the Designees, as such term is defined in the Shareholders Agreement of even
date herewith by and among Kenneth Fong and certain Investors defined therein.
VII. STOCK FULLY PAID.
All Shares which may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable. Issuance of certificates for Shares upon the exercise of this
Warrant shall be made without charge to the Warrantholder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Warrantholder or in such
name or names as may be directed by the Warrantholder.
VIII. RESERVATION OF STOCK.
The Company covenants that during the term in which this Warrant is
exercisable, the Company will reserve from its authorized and unissued shares of
Common Stock a sufficient number of shares to provide for the issuance of all
shares of Common Stock issuable upon the exercise in full of this Warrant and,
from time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Common Stock issuable
upon exercise of the Warrant. The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
IX. CERTAIN ADJUSTMENTS.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
A. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Exercise
Price pursuant to this paragraph 7, the number of Shares of Common Stock
purchasable hereunder shall be adjusted to the product (rounded to the nearest
whole share) obtained by multiplying the number of Shares purchasable
immediately prior to such adjustment in the Exercise Price by a fraction, the
numerator of which shall be the Exercise Price immediately prior to such
adjustment and the denominator of which shall be the Exercise Price immediately
thereafter.
B. RECLASSIFICATION OR MERGER. In case of any reclassification or change
of outstanding securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is a continuing corporation
and which does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant), or in case of any sale of
all or any substantial portion of
3.
<PAGE>
the assets of the Company, the Company shall, as a condition precedent to such
transaction, execute a new Warrant or cause such successor or purchasing
corporation, as the case may be, to execute a new Warrant, providing the
Warrantholder upon such exercise the right to receive, in lieu of each Share
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of one Share. Such new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this paragraph 7. The provisions
of this subparagraph 7(b) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
C. SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Stock, the Exercise Price shall proportionately be decreased in the case of
a subdivision or increased in the case of a combination.
D. STOCK DIVIDENDS. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in Common Stock, or make any other distribution with respect to Common
Stock (except any distribution specifically provided for in subparagraph 7(b)
above) of Common Stock then in each such case the Exercise Price shall be
adjusted, from and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Exercise Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
E. ADDITIONAL STOCK. If the Company shall issue, after September 9, 1997
(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 Exercise Price in effect immediately prior to the issuance of such
Additional Stock, the Exercise Price in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause) be
adjusted to a price determined by multiplying such Exercise Price by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance on a fully diluted basis after
giving effect to the conversion, exercise or exchange of any and all outstanding
warrants, options, preferred stock and any other securities of the Company
convertible into or exercisable or exchangeable for Common Stock of the Company
("Fully Diluted Basis"), plus the number of shares of Common Stock that the
aggregate consideration received by the Corporation for such issuance would
purchase at such Exercise Price, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
on a Fully Diluted Basis plus the number of shares of such Additional Stock.
1. No adjustment of the Exercise Price for the Warrant shall be made
in an amount less than one cent ($0.01) 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 taken into account in any subsequent adjustment. Except to
the limited extent provided for in subsections 7(e)(iv)(C) and 7(e)(iv)(D), no
adjustment of such Exercise Price pursuant to this subparagraph
4.
<PAGE>
7(e) shall have the effect of increasing the Exercise Price above the Exercise
Price in effect immediately prior to such adjustment.
2. In the case of the issuance of any Additional 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 the Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
3. In the case of the issuance of any Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be equal to the reasonable, good faith estimate of the
fair market value thereof as evidenced by the affirmative vote of a majority of
the Board of Directors (which majority must include the Series A Directors)
irrespective of any accounting treatment.
4. 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 paragraph 7(e) and paragraph 7(f):
a. 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
7(e)(ii) and 7(e)(iii), if any, received by the Company 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.
b. 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 Company 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 received by the Company (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 7(e)(ii) and 7(e)(iii).
c. In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the Company upon exercise
of such options
5.
<PAGE>
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 Exercise Price of the Warrant, 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.
d. 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
Exercise Price of the Warrant, 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.
e. The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subsections 7(e)(iv)(A) and
7(e)(iv)(B) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either subsection 7(e)(iv)(C) or
7(e)(iv)(D).
F. "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to subsection 7(e)(4) by the Company after
the Effective Date other than
1. Common Stock issued pursuant to a transaction described in
paragraphs 7(c) or 7(d) hereof,
2. shares of Common Stock issuable or issued upon exercise of this
Warrant,
3. up to 2,571,429 shares of Common Stock issuable or issued to
employees, officers, consultants or directors of this Company directly or
pursuant to a stock option plan or restricted stock plan approved by the Board
of Directors of this Company (such number of shares to be calculated net of any
shares repurchased at cost by the Company in connection with the termination of
employment of an employee of the Company and proportionally adjusted to reflect
subsequent stock dividends, stock splits or recapitalizations), or
4. up to 1,000,000 shares of Common Stock issuable or issued upon
exercise of warrants to purchase Common Stock, which warrants are issued
pursuant to equipment leases, bank credit agreements or strategic joint ventures
or alliances approved by the Board of Directors of the Company.
G. OTHER DISTRIBUTIONS. In the event the Company shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights not referred to in subparagraphs 7(c) or 7(d), then, in each
such case for the purpose of this subsection (g), the Warrantholders shall be
entitled to a proportionate share of any such distribution as though they were
the holders
6.
<PAGE>
of the number of shares of Common Stock of the Company into which their shares
of the Warrants are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution. In the event that any other adjustment event not expressly
provided for by this Section 7 shall occur (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Shares obtainable
upon exercise of this Warrant so as to protect the rights of the Warrantholder.
H. NOTICES OF CERTAIN EVENTS. In case
(i) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of
all or substantially all of the assets of the Company to another corporation,
or
(iii) of any voluntary dissolution, liquidation of
winding up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Warrantholder a notice specifying, as the case may be, (A) the date on which a
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, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, 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 (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at least
twenty (20) days prior to the date therein specified. All such notices, advices
and communications shall be deemed to have been received (I) in the case of
personal delivery, on the date of such delivery and (II) in the case of mailing,
on the third business day following the date of such mailing.
X. NOTICE OF ADJUSTMENTS.
Whenever any Exercise Price shall be adjusted pursuant to paragraph 7
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Exercise Price or Prices after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage paid) to the Warrantholder.
7.
<PAGE>
XI. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in connection with any
exercise hereunder, 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.
XII. REPLACEMENT OF WARRANT.
On receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant and, in the case of loss,
theft, or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of mutilation,
on surrender and cancellation of this Warrant, the Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor and
amount.
XIII. REPRESENTATIONS AND WARRANTIES OF WARRANTHOLDER. Warrantholder hereby
represents and warrants that:
A. PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant and the Common Stock
issuable upon exercise hereof (collectively, the "Securities") will be acquired
for investment for the Warrantholder's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and the
Warrantholder has no present intention of selling, granting any participation
in, or otherwise distributing the same. The Warrantholder does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participation to any person with respect to any of the
Securities.
B. INVESTMENT EXPERIENCE. The Warrantholder acknowledges that it is able
to protect its own economic interests, 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 investment in this Warrant.
C. ACCREDITED INVESTOR. The Warrantholder is an "accredited investor"
within the meaning of Rule 501 of Regulation D of the Securities and Exchange
Commission (the "SEC"), as presently in effect.
D. RESTRICTED SECURITIES. Warrantholder 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 of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, the Warrantholder represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Act.
E. FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Warrantholder 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 paragraph 11, and:
8.
<PAGE>
1. 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; or
2. Such Warrantholder 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 if
reasonably requested by the Company, such Warrantholder 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 Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
(A) by a Warrantholder that is a partnership to a partner of such partnership or
a retired partner of such partnership who retires after the date hereof, (B) to
the estate of any such partner or retired partner or the transfer by gift, will
or intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse, or (C) by
a Warrantholder to an affiliate of such Warrantholder if the transferee agrees
in writing to be subject to the terms hereof to the same extent as if he or she
were an original Warrantholder hereunder.
XIV. RIGHTS OF STOCKHOLDERS. This Warrant shall not entitle the Warrantholder
to any voting rights or other rights as a shareholder of the Company.
XV. GOVERNING LAW.
This Warrant shall be governed by the internal laws of the State of
California, as applied to contracts between residents of California and to be
performed entirely within California, without regard to the application of
conflict of law rules.
XVI. MISCELLANEOUS.
A. The terms of this Warrant shall be binding upon and shall inure to the
benefit of any successors or assigns of the Company and of the holder or holders
hereof and of the Common Stock issued or issuable upon the exercise hereof, and
all of the obligations of the Company relating to the Common Stock issuable upon
exercise of this Warrant shall survive the exercise of this Warrant.
B. The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered Warrantholder hereof. All notices and other communications from
the Company to the Warrantholder shall be delivered personally or mailed by
first-class registered or certified mail, postage prepaid, to the address
furnished to the Company in writing by the last Warrantholder who shall have
furnished an address to the Company in writing and shall be deemed to have been
given when so delivered or mailed.
9.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
CLONTECH LABORATORIES, INC.
Date: September 9, 1997 By: /s/ Ken Fong
----------------------- -----------------------------------------
AGREED TO AND ACCEPTED TO BY:
WARRANTHOLDER
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
-----------------------------
General Partner
10.
<PAGE>
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR UNDER
SUCH ACT OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER AND IN
COMPLIANCE WITH STATE SECURITIES LAWS.
VOID AFTER SEPTEMBER 9, 2001
CLONTECH LABORATORIES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, SUMMIT SUBORDINATED DEBT FUND
II, L.P., or its assigns (the "Warrantholder"), are entitled to purchase up
to Fifty Thousand, Two Hundred and Twenty-Four (50,224) shares (the
"Shares") of the fully paid and nonassessable Common Stock ("Common Stock")
of CLONTECH LABORATORIES, INC., a California corporation (the "Company"), at
the Exercise Price provided herein. The Exercise Price and the number of
Shares purchasable hereunder are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Securities Purchase Agreement, dated
as of the date of this Warrant, by and between the Company and the
Warrantholder.
III. TERM.
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time and from time to time during the term commencing on
September 9, 1997 (the "Effective Date") and ending on September 9, 2001 at 5:00
p.m., Pacific time (the "Expiration Date").
IV. ADJUSTMENT OF SHARES.
In addition to any other adjustment required pursuant to paragraph 7
hereof, at the end of each thirty (30) day period ending after the Effective
Date and on or prior to the Expiration Date, (a) the aggregate number of Shares
which may be purchased pursuant to this Warrant shall be decreased by one
forty-eighth (1/48) of 1.2% of the total number of shares of Common Stock
outstanding on a fully diluted basis, and (b) the Exercise Price per share shall
be adjusted to an amount equal to the quotient obtained by dividing $142,970 by
the aggregate number of Shares which may be purchased pursuant to this Warrant
immediately after giving effect to the adjustment described in clause (a).
V. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
Subject to paragraph 1 hereof, the purchase right represented by this
Warrant may be exercised by the Warrantholder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Exhibit A duly executed) at the principal office of the Company and, subject to
paragraph 4 below, (i) by the payment to the Company, by certified or
1.
<PAGE>
official bank check, payable to the order of the Company, (ii) by cancellation
by the Warrantholder of indebtedness of the Company to the Warrantholder, or
(iii) by a combination of (i) and (ii), of an amount equal to the Exercise Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the rights represented by this Warrant, certificates for the
Shares so purchased shall be delivered to the Warrantholder within ten (10)
business days of receipt of this Warrant and such notice, together with the
applicable exercise price, and, unless this Warrant has been fully exercised or
expires, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to the Warrantholder within such ten (10) business day period. Upon
receipt by the Company of this Warrant and such notice of exercise form,
together with the applicable exercise price, the Warrantholder shall be deemed
to be the holder of record of the Shares, notwithstanding that certificates
representing the Shares shall not then be actually delivered to such
Warrantholder or that such Shares are not then set forth on the stock transfer
books of the Company.
VI. NET EXERCISE.
In lieu of exercising this Warrant by payment of the exercise price in
cash, the Warrantholder may elect to receive Shares equal to the value of this
Warrant (or the portion thereof being cancelled) by surrender of this Warrant
(with the cashless exercise form attached hereto as Exhibit B duly executed) at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Warrantholder hereof a number of
shares of the Company's Common Stock computed using the following formula:
Y (A - B)
X = ---------
A
Where
X is the number of shares of Common Stock to be issued
to the Warrantholder;
Y is the number of shares of Common Stock purchasable
under this Warrant;
A is the fair market value of one share of the
Company's Common Stock; and
B is the Exercise Price (as adjusted to the date of
such calculations).
For purposes of this paragraph 4, if the Shares are traded in a public
market, the fair market value of the Shares shall mean the average of the
closing bid and asked prices of the Shares quoted in the over-the-counter market
in which the Shares are traded or the closing price quoted on any exchange on
which the Shares are listed, whichever is applicable, as published in the
Western Edition of THE WALL STREET JOURNAL for the ten (10) trading days prior
to the date of determination of fair market value. If the Shares are not traded
in an over-the-counter market or on an exchange, the fair market value shall be
the price per share that the Company could obtain
2.
<PAGE>
from a willing buyer for Shares sold by the Company from authorized but
unissued shares, as such price shall be determined in the good faith reasonable
judgment of the Company's Board of Directors (including the affirmative) vote of
the Designees, as such term is defined in the Shareholders Agreement of even
date herewith by and among Kenneth Fong and certain Investors defined therein.
VII. STOCK FULLY PAID.
All Shares which may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable. Issuance of certificates for Shares upon the exercise of this
Warrant shall be made without charge to the Warrantholder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Warrantholder or in such
name or names as may be directed by the Warrantholder.
VIII. RESERVATION OF STOCK.
The Company covenants that during the term in which this Warrant is
exercisable, the Company will reserve from its authorized and unissued shares of
Common Stock a sufficient number of shares to provide for the issuance of all
shares of Common Stock issuable upon the exercise in full of this Warrant and,
from time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Common Stock issuable
upon exercise of the Warrant. The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
IX. CERTAIN ADJUSTMENTS.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
A. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Exercise
Price pursuant to this paragraph 7, the number of Shares of Common Stock
purchasable hereunder shall be adjusted to the product (rounded to the nearest
whole share) obtained by multiplying the number of Shares purchasable
immediately prior to such adjustment in the Exercise Price by a fraction, the
numerator of which shall be the Exercise Price immediately prior to such
adjustment and the denominator of which shall be the Exercise Price immediately
thereafter.
B. RECLASSIFICATION OR MERGER. In case of any reclassification or change
of outstanding securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is a continuing corporation
and which does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant), or in case of any sale of
all or any substantial portion of
3.
<PAGE>
the assets of the Company, the Company shall, as a condition precedent to such
transaction, execute a new Warrant or cause such successor or purchasing
corporation, as the case may be, to execute a new Warrant, providing the
Warrantholder upon such exercise the right to receive, in lieu of each Share
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of one Share. Such new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this paragraph 7. The provisions
of this subparagraph 7(b) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
C. SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Stock, the Exercise Price shall proportionately be decreased in the case of
a subdivision or increased in the case of a combination.
D. STOCK DIVIDENDS. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in Common Stock, or make any other distribution with respect to Common
Stock (except any distribution specifically provided for in subparagraph 7(b)
above) of Common Stock then in each such case the Exercise Price shall be
adjusted, from and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Exercise Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
E. ADDITIONAL STOCK. If the Company shall issue, after September 9, 1997
(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 Exercise Price in effect immediately prior to the issuance of such
Additional Stock, the Exercise Price in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause) be
adjusted to a price determined by multiplying such Exercise Price by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance on a fully diluted basis after
giving effect to the conversion, exercise or exchange of any and all outstanding
warrants, options, preferred stock and any other securities of the Company
convertible into or exercisable or exchangeable for Common Stock of the Company
("Fully Diluted Basis"), plus the number of shares of Common Stock that the
aggregate consideration received by the Corporation for such issuance would
purchase at such Exercise Price, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
on a Fully Diluted Basis plus the number of shares of such Additional Stock.
1. No adjustment of the Exercise Price for the Warrant shall be made
in an amount less than one cent ($0.01) 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 taken into account in any subsequent adjustment. Except to
the limited extent provided for in subsections 7(e)(iv)(C) and 7(e)(iv)(D), no
adjustment of such Exercise Price pursuant to this subparagraph
4.
<PAGE>
7(e) shall have the effect of increasing the Exercise Price above the Exercise
Price in effect immediately prior to such adjustment.
2. In the case of the issuance of any Additional 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 the Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
3. In the case of the issuance of any Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be equal to the reasonable, good faith estimate of the
fair market value thereof as evidenced by the affirmative vote of a majority of
the Board of Directors (which majority must include the Series A Directors)
irrespective of any accounting treatment.
4. 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 paragraph 7(e) and paragraph 7(f):
a. 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
7(e)(ii) and 7(e)(iii), if any, received by the Company 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.
b. 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 Company 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 received by the Company (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 7(e)(ii) and 7(e)(iii).
c. In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the Company upon exercise
of such options
5.
<PAGE>
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 Exercise Price of the Warrant, 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.
d. 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
Exercise Price of the Warrant, 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.
e. The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subsections 7(e)(iv)(A) and
7(e)(iv)(B) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either subsection 7(e)(iv)(C) or
7(e)(iv)(D).
F. "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to subsection 7(e)(4) by the Company after
the Effective Date other than
1. Common Stock issued pursuant to a transaction described in
paragraphs 7(c) or 7(d) hereof,
2. shares of Common Stock issuable or issued upon exercise of this
Warrant,
3. up to 2,571,429 shares of Common Stock issuable or issued to
employees, officers, consultants or directors of this Company directly or
pursuant to a stock option plan or restricted stock plan approved by the Board
of Directors of this Company (such number of shares to be calculated net of any
shares repurchased at cost by the Company in connection with the termination of
employment of an employee of the Company and proportionally adjusted to reflect
subsequent stock dividends, stock splits or recapitalizations), or
4. up to 1,000,000 shares of Common Stock issuable or issued upon
exercise of warrants to purchase Common Stock, which warrants are issued
pursuant to equipment leases, bank credit agreements or strategic joint ventures
or alliances approved by the Board of Directors of the Company.
G. OTHER DISTRIBUTIONS. In the event the Company shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights not referred to in subparagraphs 7(c) or 7(d), then, in each
such case for the purpose of this subsection (g), the Warrantholders shall be
entitled to a proportionate share of any such distribution as though they were
the holders
6.
<PAGE>
of the number of shares of Common Stock of the Company into which their shares
of the Warrants are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution. In the event that any other adjustment event not expressly
provided for by this Section 7 shall occur (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Shares obtainable
upon exercise of this Warrant so as to protect the rights of the Warrantholder.
H. NOTICES OF CERTAIN EVENTS. In case
(i) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of
all or substantially all of the assets of the Company to another corporation,
or
(iii) of any voluntary dissolution, liquidation of
winding up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Warrantholder a notice specifying, as the case may be, (A) the date on which a
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, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, 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 (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at least
twenty (20) days prior to the date therein specified. All such notices, advices
and communications shall be deemed to have been received (I) in the case of
personal delivery, on the date of such delivery and (II) in the case of mailing,
on the third business day following the date of such mailing.
X. NOTICE OF ADJUSTMENTS.
Whenever any Exercise Price shall be adjusted pursuant to paragraph 7
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Exercise Price or Prices after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage paid) to the Warrantholder.
7.
<PAGE>
XI. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in connection with any
exercise hereunder, 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.
XII. REPLACEMENT OF WARRANT.
On receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant and, in the case of loss,
theft, or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of mutilation,
on surrender and cancellation of this Warrant, the Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor and
amount.
XIII. REPRESENTATIONS AND WARRANTIES OF WARRANTHOLDER. Warrantholder hereby
represents and warrants that:
A. PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant and the Common Stock
issuable upon exercise hereof (collectively, the "Securities") will be acquired
for investment for the Warrantholder's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and the
Warrantholder has no present intention of selling, granting any participation
in, or otherwise distributing the same. The Warrantholder does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participation to any person with respect to any of the
Securities.
B. INVESTMENT EXPERIENCE. The Warrantholder acknowledges that it is able
to protect its own economic interests, 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 investment in this Warrant.
C. ACCREDITED INVESTOR. The Warrantholder is an "accredited investor"
within the meaning of Rule 501 of Regulation D of the Securities and Exchange
Commission (the "SEC"), as presently in effect.
D. RESTRICTED SECURITIES. Warrantholder 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 of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, the Warrantholder represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Act.
E. FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Warrantholder 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 paragraph 11, and:
8.
<PAGE>
1. 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; or
2. Such Warrantholder 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 if
reasonably requested by the Company, such Warrantholder 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 Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
(A) by a Warrantholder that is a partnership to a partner of such partnership or
a retired partner of such partnership who retires after the date hereof, (B) to
the estate of any such partner or retired partner or the transfer by gift, will
or intestate succession of any partner to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or his or her spouse, or (C) by
a Warrantholder to an affiliate of such Warrantholder if the transferee agrees
in writing to be subject to the terms hereof to the same extent as if he or she
were an original Warrantholder hereunder.
XIV. RIGHTS OF STOCKHOLDERS. This Warrant shall not entitle the Warrantholder
to any voting rights or other rights as a shareholder of the Company.
XV. GOVERNING LAW.
This Warrant shall be governed by the internal laws of the State of
California, as applied to contracts between residents of California and to be
performed entirely within California, without regard to the application of
conflict of law rules.
XVI. MISCELLANEOUS.
A. The terms of this Warrant shall be binding upon and shall inure to the
benefit of any successors or assigns of the Company and of the holder or holders
hereof and of the Common Stock issued or issuable upon the exercise hereof, and
all of the obligations of the Company relating to the Common Stock issuable upon
exercise of this Warrant shall survive the exercise of this Warrant.
B. The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered Warrantholder hereof. All notices and other communications from
the Company to the Warrantholder shall be delivered personally or mailed by
first-class registered or certified mail, postage prepaid, to the address
furnished to the Company in writing by the last Warrantholder who shall have
furnished an address to the Company in writing and shall be deemed to have been
given when so delivered or mailed.
9.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
CLONTECH LABORATORIES, INC.
Date: September 9, 1997 By: /s/ Ken Fong
----------------------- -----------------------------------------
AGREED TO AND ACCEPTED TO BY:
WARRANTHOLDER
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
-----------------------------
General Partner
10.
<PAGE>
EXHIBIT 4.5
- -------------------------------------------------------------------------------
SHAREHOLDERS AGREEMENT
BY AND AMONG
KENNETH FONG
AND
THE INVESTORS IDENTIFIED HEREIN
----------------------
dated as of
September 9, 1997
----------------------
- -------------------------------------------------------------------------------
<PAGE>
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT is made as of September 9, 1997, by and among
KENNETH FONG (the "Old Shareholder") and the other persons identified on the
signature page hereof (each, a "New Shareholder" and, collectively together with
the Old Shareholder, the "Shareholders"). Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned to them in
the Securities Purchase Agreement of even date herewith by and among Clontech
Laboratories, Inc., a California corporation (the "Company"), and the New
Shareholders (the "Securities Purchase Agreement").
WHEREAS, in order to induce the New Shareholders to purchase securities of
the Company pursuant to the Securities Purchase Agreement and the Stock Purchase
Agreement, the Old Shareholder wishes to grant certain rights to the New
Shareholders, upon the terms and conditions set forth below;
IT IS HEREBY AGREED AS FOLLOWS:
1. AGREEMENT TO VOTE. During the term of this Agreement, to the extent
the Old Shareholder is entitled under the Company's Amended and Restated
Articles of Incorporation, as amended from time to time (including pursuant to
the Restated Articles), to vote on a particular matter, the Old Shareholder
agrees to vote all of the shares of the Company's voting securities now or
hereafter owned by the Old Shareholder, whether beneficially or otherwise (the
"Shares"), as follows:
(a) BOARD OF DIRECTORS COMPOSITION. The Old Shareholder shall vote
or act with respect to the Shares so as always to elect two (2) designees of the
holders of a majority of the outstanding shares of Common Shares (the
"Designees"), which designees shall initially be Gregory M. Avis and Mark G.
Hilderbrand, as directors of the Company. Any vacancy occurring because of the
death, resignation, or removal of any of the Designees shall be filled according
to this paragraph.
(b) PROTECTIVE PROVISIONS. So long as the Investors and subsequent
transferees of Common Shares beneficially own in the aggregate at least 905,144
Common Shares (such number of shares to be adjusted appropriately for subsequent
stock splits, stock combinations, stock dividends and like events), the Old
Shareholder shall vote or act with respect to the Shares as directed in writing
by the holders of a majority in interest of the outstanding Common Shares with
respect to any matter set forth in Section 2.3 (entitled "Protective
Provisions") of the Investor Rights Agreement. The Seller hereby acknowledges
that he has received and carefully reviewed the Investor Rights Agreement, and
has received all advice of counsel necessary to fully understand the provisions
thereof.
2. PROXY. In order to effectuate Section 1, the Old Shareholder hereby
grants to each of the New Shareholders an irrevocable proxy to vote, during the
period in which this Agreement is in effect and subject to the terms and
provisions hereof, all of the Shares and other voting securities of the Company
owned by the Old Shareholder for the election and removal of Designee directors
in accordance with Section 1 and to effectuate the other provisions of Section 1
hereof.
1.
<PAGE>
3. PUT RIGHTS.
(a) At any time on or after the occurrence of a Put Trigger Event (as
defined in the Investor Rights Agreement), the New Shareholders and any other
holder of Common Shares shall each have the right to require the Old Shareholder
to purchase all or any Common Shares held by the New Shareholder or such holder
at the Put Price determined as provided below (the "Put Right") by delivering a
written notice to the Old Shareholder specifying the amount of securities to be
purchased (the "Put Notice"). Upon receipt of the Put Notice, the Old
Shareholder shall give written notice of the exercise of the Put Right to each
other holder of Common Shares, and each such other holder shall have the right,
within ten days after receipt of such notice, to participate in such exercise of
the Put Right by delivering a written notice (the "Participation Notice") to the
Company specifying the amount of securities to be purchased. All
securityholders of the Company (including, as the case may be, any New
Shareholder) participating in the exercise of the Put Right are referred to
herein as the "Participating Holders." The Old Shareholder shall use his best
efforts to honor the Put Right.
At such time as a majority in interest of the New Shareholders
and any other holder of Common Shares have exercised the Put Right under Section
2.7, all Common Shares then outstanding shall be repurchased by the Old
Shareholder at the price and upon the terms and conditions specified in this
Section 3 for Participating Holders exercising their Put Right.
(b) Upon the delivery of the Put Notice, the Old Shareholder and the
Participating Holders shall in good faith promptly determine the Put Price as
provided hereunder, and within ten (10) days after the determination of the Put
Price the Old Shareholder shall purchase and the Participating Holders shall
sell the amount of securities specified in the Put Notice and, as applicable,
each Participation Notice, at a mutually agreeable time and place (the "Put
Closing"). At the Put Closing, each Participating Holder shall deliver to the
Old Shareholder certificates representing such holder's Common Shares to be
purchased by the Old Shareholder, free and clear of all Liens and Encumbrances
and duly endorsed in blank or accompanied by duly executed forms of assignment
(with signatures guaranteed), and the Old Shareholder shall deliver to each such
Participating Holder the Put Price payable to such Participating Holder as
determined pursuant to paragraph (c) immediately below. All amounts of the Put
Price shall be paid by cashiers or certified check or wire transfer of
immediately available funds to an account designated by each such Participating
Holder.
(c) The Common Shares to be purchased by the Old Shareholder from
each Participating Holder pursuant to the Put Right shall be purchased at a
price (the "Put Price") equal to the product of (i) the Market Value (as defined
below) of the Company, multiplied by (ii) a fraction, the numerator of which
shall be the number of each such Participating Holder's shares to be purchased
and the denominator of which shall be the total number of shares of Common Stock
then outstanding and the total number of shares of Common Stock issuable upon
conversion, exercise or exchange of all In-the-Money Options and Securities (as
defined in the Investor Rights Agreement) as of the date the Put Price is
determined hereunder. Notwithstanding the foregoing, the "Put Price"
attributable to any Common Shares shall be equal to the lesser of (x) the Put
Price otherwise determined with respect thereto pursuant to the immediately
preceding sentence and (y) the purchase price of such Common Shares under the
2.
<PAGE>
Stock Purchase Agreement plus an amount accruing thereon at the rate of 8% per
annum from the date on which such Common Shares are sold pursuant to the Stock
Purchase Agreement to and including the date on which such Common Shares are
purchased by the Old Shareholder pursuant to the Put Right hereunder. The
Market Value of the Company shall be determined jointly by the Old Shareholder
and the Participating Holders. If such parties are unable to reach agreement
within a reasonable period of time (not to exceed 30 days), the Market Value of
the Company shall be determined by means of the following procedure:
(i) The Old Shareholder and the Participating Holders as a group
shall each select and retain an independent appraiser or firm experienced in
valuations of the type contemplated hereby. The Old Shareholder and the
Participating Holders, respectively, shall bear the fees and expenses of their
independent appraiser or firm. As soon as practicable (and in any event within
30 days) after being retained, each firm shall submit to the Old Shareholder and
the Participating Holders a written report setting forth its determination of
the Market Value of the Company. In the event that the Market Value of the
Company as determined by the two firms is not identical but differs by less than
ten percent of the greater estimate, then the final Market Value shall be the
arithmetic mean of the different Market Values as determined by the two firms.
(ii) In the event that the Market Value of the Company as
determined by the two firms is not identical but differs by greater than ten
percent of the greater estimate, then the two firms shall jointly select and
retain, as soon as practicable (and in any event within 15 days) thereafter, a
third independent appraiser or firm experienced in valuations of the type
contemplated hereby. The expenses of such third appraiser or firm shall be
borne equally by the Old Shareholder, on the one hand, and the Participating
Holders, on the other hand. As soon as practicable (and in any event within 30
days) after being retained, such firm shall submit to the Old Shareholder and
the Participating Holders a written report setting forth its determination of
the Market Value of the Company. The final Market Value shall be the arithmetic
mean of the Market Value as determined (A) by the firm designated in accordance
with this subparagraph (ii) and (B) the Market Value as determined by whichever
of the two firms designated in accordance with subparagraph (i) immediately
above is closest to the Market Value as determined by the firm designated in
accordance with this subparagraph (ii).
(d) The Old Shareholder shall not be personally liable in any respect
for any liability, obligation or monetary damages resulting from the breach or
non-performance of Section 3 of this Agreement except for the Pledged Shares (as
defined in the Stock Pledge Agreement) The New Shareholders agree that, in the
event any of them pursues any remedies available to them under Section 3 of this
Agreement or the Stock Pledge Agreement, the New Shareholders shall not have any
recourse against the Old Shareholder for any deficiency, loss or claim of
monetary damages or otherwise resulting therefrom and recourse shall be had
solely and exclusively against the Pledged Shares.
(e) As consideration for the grant by the Old Shareholder to the
Investors of the Put Right hereunder, and in addition to the mutual promises,
covenants and other good and valuable consideration provided in the Transaction
Documents to which he is a party (the receipt and sufficiency of which
consideration is hereby acknowledged), the Investors hereby pay to the
3.
<PAGE>
Old Shareholder, and the Old Shareholder hereby acknowledges receipt of payment
of, an amount equal to $25,000.
4. SUCCESSORS IN INTEREST OF THE SHAREHOLDERS. The provisions of this
Agreement shall be binding upon the successors in interest of the Shareholders
to any of the Shareholders' Shares or Common Shares, as the case may be. The
Shareholders shall not permit the transfer of any Shares or Common Shares, as
the ease may be unless and until the person to whom such security is to be
transferred shall have executed a written agreement, satisfactory in form and
substance to the remaining Shareholders, pursuant to which such person becomes a
party to this Agreement and agrees to be bound by all the provisions hereof as
if such person was an Old Shareholder or New Shareholder (as applicable)
hereunder.
5. TERMINATION. This Agreement shall terminate upon the earlier to occur
of (a) the consummation of a Qualified IPO or merger in which the Company is not
the surviving entity or (b) the repurchase by the Company or the purchase by the
Old Shareholder of all Common Shares.
6. 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 each of (i) the Old Shareholder, (ii) holders of a majority in
interest of the Common Shares. Any amendment or waiver so effected shall be
binding upon the Shareholders or their assigns.
7. STOCK SPLITS, STOCK DIVIDENDS, ETC. In the event of any stock split,
stock dividend, recapitalization, reorganization, or the like, any securities
issued with respect to the Shares or Common Shares shall become Shareholders'
Shares or Common Shares for purposes of this Agreement.
8. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this 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
Agreement.
9. 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.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in
this Agreement, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
4.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first written above.
OLD SHAREHOLDER:
/s/ Ken Fong
------------------------------------
Kenneth Fong
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV
Its General Partner
By: /s/ Gregory M. Avis
---------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
--------------------------------
General Partner
SUMMIT SUBORDINATED DEBT FUND II, L.P.
By: Summit Partners SD II, LLC
Its General Partner
By: /s/ Gregory M. Avis
---------------------------
General Partner
[SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT]
<PAGE>
The Company agrees to take all actions required to ensure that the rights
given to the Shareholders hereunder are effective and that the Shareholders
enjoy the benefits thereof. Such actions include, without limitation, the use
of the Company's best efforts to cause the nomination of the designees of the
Shareholders, as provided herein, for election as directors of the Company. The
Company will not, 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, but
will at all times in good faith assist in the carrying out of all of the
provisions of this Agreement and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the Shareholders
hereunder against impairment.
CLONTECH LABORATORIES, INC.
By: /s/ Ken Fong
----------------------------
Title: President and Chief Executive Officer
-------------------------------------
Date: September 9, 1997
----------------------------
[SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT]
<PAGE>
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
THIS RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT is made as of
September 9, 1997, by and among DR. KENNETH FONG (the "Original
Shareholders"), CLONTECH LABORATORIES, INC., a California corporation (the
"Company"), SUMMIT VENTURES IV, L.P., a Delaware limited partnership, SUMMIT
INVESTORS III, L.P., a Delaware limited partnership, and SUMMIT SUBORDINATED
DEBT FUND II, L.P., a Delaware limited partnership (collectively, the
"Investors").
In consideration of the mutual covenants set forth herein, the parties
agree as follows:
1. DEFINITIONS.
(a) "STOCK" shall mean any and all shares of the Company's Common
Stock or other capital stock or equity securities of the Company now owned or
subsequently acquired by the Original Shareholders.
(b) "COMMON STOCK" shall mean the Company's outstanding Common Stock
and all shares of Common Stock issued or issuable upon exercise of the Company's
outstanding Warrants to purchase Common Stock, or upon exercise of options
issued under any stock option or other employee benefit plan of the Company.
2. RIGHT OF FIRST REFUSAL.
(a) If any Original Shareholder proposes to sell or transfer any
shares of Stock (the "Offered Stock") in one or more related transactions, then
such Original Shareholder shall promptly give written notice (the "Notice") to
the Company and each Investor at least 20 days prior to the closing of such sale
or transfer. The Notice shall describe in reasonable detail the proposed sale
or transfer including, without limitation, the number of shares of Stock to be
sold or transferred, the nature of such sale or transfer, the consideration to
be paid, and the name and address of each prospective purchaser or transferee.
In the event that the sale or transfer is being made pursuant to the provisions
of paragraph 4(a) or 4(b) hereof, the Notice shall state under which paragraph
the sale or transfer is being made.
(b) Each Investor will have the right, exercisable upon written
notice to such Original Shareholder within 20 days after receipt of the Notice,
to purchase up to such Investor's Pro Rata Portion of the Offered Stock on the
same terms and conditions (the "Right of First Refusal"). Any such notice of an
Investor's election to purchase Offered Stock shall set forth the number of
shares that the Investor desires to purchase. For purposes hereof, "Pro Rata
Portion" means, as to any Investor, a fraction, the numerator of which is the
number of shares of Common Stock owned by such Investor at the time of the sale
or transfer and the denominator of which is the total number of shares of Common
Stock owned by all of the Investors at the time of the sale or transfer.
(c) If any Investor fails to elect to purchase its full Pro Rata
Portion of the Offered Stock pursuant to this Section 2, the Original
Shareholder shall give notice of such failure to the Investors who did so elect
(the "ROFR Participants"). Such notice may be made by
1.
<PAGE>
telephone if confirmed in writing within two days. The ROFR Participants
shall have five days from the date such notice was given to elect to purchase
their pro rata share of the unpurchased portion. For purposes of this
paragraph, an ROFR Participant's pro rata share shall be equal to the product
obtained by multiplying (i) the number of shares in the unpurchased portion
by (ii) a fraction, the numerator of which is the number of shares of Common
Stock held by such ROFR Participant and the denominator of which is the total
number of shares of Common Stock held by all of the ROFR Participants. Any
shares which the Investors elect not to purchase pursuant to the Right of
First Refusal shall be subject to the Co-Sale Right provided in Section 3.
(d) The purchase price for the Offered Stock to be purchased by an
Investor pursuant to its Right of First Refusal will be the consideration per
share set forth in the Notice, payable as provided below in this paragraph. If
such consideration includes consideration other than cash, the cash equivalent
value of the non-cash consideration will be determined by the Board of Directors
of the Company in its reasonable good faith judgment, which determination will
be binding upon the Company and the Investor.
(e) The closing of the purchase and sale of the Offered Stock shall
occur within ten (10) days after the last ROFR Participant delivers its written
notice of election to purchase the Offered Stock. At such closing, (i) the
Original Shareholder will deliver to each ROFR Participant all certificates
evidencing the Offered Stock purchased by such ROFR Participant, accompanied by
stock powers duly endorsed in blank or as instructed by the ROFR Participant,
against (ii) payment by the ROFR Participant of the purchase price for such
Offered Stock. Payment of the purchase price will be made, at the option of the
ROFR Participant, (i) in cash (by check); (ii) by cancellation of all or a
portion of any outstanding indebtedness of the Original Shareholder to the ROFR
Participant, or (iii) by any combination of the foregoing. Upon payment for the
Offered Stock purchased by the ROFR Participant pursuant to its Right of First
Refusal hereunder, the Original Shareholder will have no further rights as a
holder of such Offered Stock.
(f) If the Investors do not elect pursuant to the Right of First
Refusal (including under paragraph (c) above) to purchase all of the Offered
Stock, then the Original Shareholder may sell or transfer the remaining Offered
Stock (if any) permitted to be sold by the Original Shareholder to any person
named as a proposed transferee in the Notice, for the consideration set forth in
the Notice (or for greater consideration that includes at least the same amount
of cash consideration as that set forth in the Notice), provided that such sale
or transfer (i) is consummated within thirty (30) days after the date of the
Notice and (ii) is in accordance with the terms and conditions of this
Agreement. If the Offered Stock is not so transferred during such thirty (30)
day period, then the Original Shareholder will not transfer any of such Offered
Stock without complying again in full with the provisions of this Agreement.
(g) The exercise or non-exercise of the rights of the Investors
hereunder to purchase any Offered Stock pursuant to their Right of First Refusal
shall not adversely affect their right to purchase any other Stock subject to
Section 2 of this Agreement.
2.
<PAGE>
3. CO-SALE RIGHTS.
(a) In addition to their Right of First Refusal, the Investors shall
have the right, exercisable upon written notice to any Original Shareholder who
delivers a notice within 20 days after receipt of the Notice, to participate in
the sale of Offered Stock (not purchased pursuant to the Right of First Refusal)
on the same terms and conditions as set forth in the relevant Notice (the
"Co-Sale Right"). To the extent that the Investors exercise such right of
participation in accordance with the terms and conditions set forth below, the
number of shares of Offered Stock that the Original Shareholder may sell in the
transaction shall be correspondingly reduced.
(b) Each Investor may sell all or any part of that number of shares
of Offered Stock equal to the product obtained by multiplying (i) the aggregate
number of shares of Offered Stock covered by the Notice by (ii) a fraction the
numerator of which is the number of shares of Common Stock owned by the
individual Investor at the time of the sale or transfer and the denominator of
which is the total number of shares of Common Stock owned by the Original
Shareholder and the Investors at the time of the sale or transfer.
(c) If any Investor fails to elect to fully participate in such
Original Shareholder's sale pursuant to this Section 3, the Original Shareholder
shall give notice of such failure to the Investors who did so elect (the Co-Sale
Participants"). Such notice may be made by telephone if confirmed in writing
within two days. The Co-Sale Participants shall have five days from the date
such notice was given to agree to sell their pro rata share of the unsold
portion. For purposes of this paragraph, a Co-Sale Participant's pro rata share
shall be equal to the product obtained by multiplying (i) the number of shares
in the unsold portion by (ii) a fraction, the numerator of which is the number
of shares of Common Stock held by such Co-Sale Participant and the denominator
of which is the total number of shares of Common Stock held by all of the
Co-Sale Participants and the Original Shareholder.
(d) Each Co-Sale Participant shall effect its participation by
promptly delivering to the Original Shareholder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent the type and number of shares of Common Stock which the Co-Sale
Participant elects to sell.
(e) The stock certificate or certificates that the Co-Sale
Participant delivers to the Original Shareholder pursuant to paragraph 3(d)
shall be transferred to the prospective purchaser in consummation of the sale of
the Offered Stock pursuant to the terms and conditions specified in the Notice,
and the Original Shareholder shall concurrently therewith remit to such Co-Sale
Participant that portion of the sale proceeds to which the Co-Sale Participant
is entitled by reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers prohibits such assignment or otherwise
refuses to purchase shares or other securities from any Investor exercising its
Co-Sale Right, the Original Shareholder shall not sell to such prospective
purchaser or purchasers any Offered Stock unless and until, simultaneously with
such sale, the Original Shareholder shall purchase such shares or other
securities from such Investor.
3.
<PAGE>
(f) The exercise or non-exercise of the rights of the Investors
hereunder to participate in one or more sales of Offered Stock made by the
Original Shareholder shall not adversely affect their rights to participate in
subsequent sales of Offered Stock subject to Section 3 of this Agreement.
(g) If none of the Investors elects to participate in the sale of the
Offered Stock subject to the Notice, the Original Shareholder may, not later
than thirty (30) days following delivery to the Company and each of the
Investors of the Notice, enter into an agreement providing for the closing of
the transfer of the Offered Stock covered by the Notice within thirty (30) days
of such agreement on terms and conditions not more favorable to the transferor
than those described in the Notice. Any proposed transfer on terms and
conditions more favorable than those described in the Notice, as well as any
subsequent proposed transfer of any such Offered Stock by the Original
Shareholder, shall again be subject to the co-sale rights of the Investors and
shall require compliance by the Original Shareholder with the procedures
described in this Section 3.
4. EXEMPT TRANSFERS.
(a) Notwithstanding the foregoing, the Co-Sale Rights of the
Investors shall not apply to any sale of Stock by the Original Shareholders
which, together with all other sales of Stock hereafter by the Original
Shareholders, constitute 1,347,429 or less of the aggregate number of shares of
Common Stock held by the Original Shareholders, and the Rights of First Refusal
and Co-Sale Rights of the Investors shall not apply to (i) any pledge of Stock
made pursuant to a bona fide loan transaction that creates a mere security
interest, (ii) any transfer to the ancestors, descendants or spouse or to mists
for the benefit of such persons or an Original Shareholder, (iii) any bona fide
gift; provided that: (A) the transferring Original Shareholder shall inform the
Investor of such pledge, transfer or gift prior to effecting it, and obtain the
consent of each of the Investors (not to be unreasonably withheld); and (B) the
pledgee, transferee or donee shall furnish each of the Investors with a written
agreement to be bound by and comply with all provisions of Sections 2 and 3.
Such written agreement shall be in form and substance satisfactory to the
Investors in their sole discretion. The transferred Stock shall remain "Stock"
hereunder, and such pledgee, transferee or donee shall be treated as an
"Original Shareholder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Sections 2 and 3
shall not apply to the sale of any Stock to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), or the acquisition of the Company by another entity by means
of merger or consolidation resulting in the exchange of the outstanding shares
of the Company's capital stock for securities or consideration issued by the
acquiring company, in which exchange all shareholders of the Company may
participate.
5. PROHIBITED TRANSFERS.
(a) In the event an Original Shareholder should sell any Offered
Stock in contravention of the Co-Sale Rights of the Investors under this
agreement (a "Co-Sale Prohibited Transfer"), each Investor, in addition to such
other remedies as may be available at law, in equity
4.
<PAGE>
or hereunder, shall have the put option provided below, and the Original
Shareholder shall be bound by the applicable provisions of such option.
(b) In the event of a Prohibited Transfer, each Investor shall have
the right to sell to the Original Shareholder the type and number of shares of
Stock equal to the number of shares the Investor would have been entitled to
transfer to the purchaser had the Prohibited Transfer been effected pursuant to
and in compliance with the terms hereof. Such sale shall be made on the
following terms and conditions:
(i) The price per share at which the shares are to be sold
to the Original Shareholder shall be equal to the price per share paid by the
purchaser to the Original Shareholder in the Prohibited Transfer. The Original
Shareholder shall also reimburse the Investors for any and all fees and
expenses, including legal fees and expense, incurred pursuant to the exercise or
the attempted exercise of the Investors' rights under Section 3.
(ii) Within 20 days after the later of the dates on which
the Investors (A) received notice of the Prohibited Transfer, or (B) otherwise
becomes aware of the Prohibited Transfer, each Investor shall, if exercising the
option created hereby, deliver to the Original Shareholder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The Original Shareholder shall, upon receipt of the
certificate or certificates for the shares to be sold by each Investor, pursuant
to this subparagraph 5(b), pay the aggregate purchase price therefor and the
amount of reimbursable fees and expense, as specified in subparagraph 5(b)(i),
in cash or by other means acceptable to the Investor.
(c) No Original Shareholder shall sell or transfer any Offered Stock
to any person or entity (other than the Investors) who will as a result thereof
become the beneficial owner of five percent (5%) or more of the aggregate amount
of Stock, unless such transferee shall furnish to each of the Investors a
written agreement conforming to the requirements of Section 4(a)(iii)(B) hereof.
(d) Notwithstanding the foregoing, any attempt by an Original
Shareholder to transfer Stock in violation of Section 2, 3 or 5(a) hereof shall
be void and the Company agrees it will not effect such a transfer nor will it
treat any alleged transferee as the holder of such shares without the written
consent of the Investors.
6. LEGEND.
(a) Each certificate representing shares of Stock now or hereafter
owned by the Original Shareholders or issued to any person in connection with a
transfer pursuant to Section 3(a) hereof shall be endorsed with the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST REFUSAL AND
CO-SALE AGREEMENT BY AND AMONG
5.
<PAGE>
THE COMPANY, THE INVESTOR. AND CERTAIN OTHER HOLDERS OF STOCK OF THE
COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF THE COMPANY."
(b) Each Original Shareholder agrees that the Company may instruct
its transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in the immediately preceding
paragraph to enforce the provisions of this Agreement and the Company agrees to
promptly do so. The legend shall be removed upon termination of this Agreement.
7. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California, without regard to the principles of
conflicts of law thereof.
(b) AMENDMENT. Any provision may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to the Investors, by persons holding more
than fifty percent (50%) in interest of the Preferred Stock held by the
Investors and their permitted assignees, and (iii) as to each Original
Shareholder, such Original Shareholder. Any amendment or waiver effected in
accordance with clauses (i), (ii) and (iii) of this paragraph shall be binding
upon the Investors, the Company and the Original Shareholder in question, and
their respective successors and assigns.
(c) ASSIGNMENT OF RIGHTS. This Agreement and the rights and
obligations of the parties hereunder shall inure to benefit of, and be binding
upon, their respective successors, assigns and legal representatives. The
rights of the Investors hereunder are assignable to an assignee or transferee
who acquires at least 452,572 shares of Common Stock from any of the Investors
(such number of shares to be adjusted appropriately for subsequent stock splits,
stock combinations, stock dividends and like events).
(d) TERM. This Agreement shall terminate upon the earlier of (i) the
closing of a Qualified IPO, as defined in the Investor Rights Agreement of even
date herewith by and between the Company and the Investors, (ii) the closing of
the Company's sale of all or substantially all of its assets or the acquisition
of the Company by another entity by means of merger or consolidation resulting
in the exchange of the outstanding shares of the Company's capital stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary, or (iii) the tenth anniversary of the date of this
Agreement.
(e) OWNERSHIP. Each Original Shareholder represents and warrants
that (i) such Original Shareholder is the sole legal and beneficial owner of the
shares of Stock subject to this Agreement and that no other person has any
interest (other than a community property interest) in such shares and (ii) upon
consummation of the sale of any Offered Stock pursuant to
6.
<PAGE>
any exercise of the Right of First Refusal, the Investor will acquire good and
marketable title to such Offered Stock, free and clear of any Liens or
Encumbrances.
(f) NOTICES. All notices required or permitted-hereunder shall be in
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid and properly addressed to the
party to be notified as 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 hereto. Notwithstanding the foregoing, the telephone notice
permitted by Section 2(d) shall be effective at the time it is given.
(g) 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 as if such invalid, illegal or unenforceable provision had
never been contained herein.
(h) ATTORNEY FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
(i) 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
7.
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
CLONTECH LABORATORIES, INC.
By: /s/ Ken Fong
-----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Address: 1020 E. Meadow Circle
------------------------------------
Palo Alto, CA 94303
------------------------------------
------------------------------------
8.
<PAGE>
INVESTORS:
Date: September 9, 1997 SUMMIT VENTURES IV, L.P.
as Investor
By: /s/ Gregory M. Avis
------------------------------------
General Partner
Date: September 9, 1997 SUMMIT INVESTORS III, L.P.
as Investor
By: Stamps, Woodsum & Co.
Its General Partner
By: /s/ Gregory M. Avis
------------------------------------
General Partner
Date: September 9, 1997 SUMMIT SUBORDINATED DEBT FUND II
By: Summit Partners SD II, LLC L.P.
Its General Partner
By: /s/ Gregory M. Avis
-----------------------------------
General Partner
[SIGNATURE PAGE TO RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT]
<PAGE>
ORIGINAL SHAREHOLDERS:
Date: September 9, 1997
--------------------------------------
Kenneth Fong
/s/ Ken Fong
--------------------------------------
(Signature)
<PAGE>
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Right of First Refusal and
Co-Sale Agreement (the "Agreement") and that I know its contents. I am aware
that by its provisions if I and/or my spouse agree to sell all or part of the
shares of Stock of the Company held of record by either or both of us,
including my community interest m such shares, if any, the right of first
refusal and co-sale rights described in the Agreement must be granted to each
of the Investors by the Original Shareholder. I hereby agree that those
shares of Stock and my interest in them, if any, are subject to the
provisions of the Agreement and that I will take no action at any time to
hinder operation of, or violate, the Agreement.
September 9, 1997 /s/ Pam Fong
- -------------------------------- ----------------------------------
Dated Name
<PAGE>
EXHIBIT 4.7
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT is made as of September 9, 1997 by KENNETH FONG
(the "Pledgor") in favor of SUMMIT VENTURES IV, L.P., a Delaware limited
partnership, SUMMIT INVESTORS III, L.P., a Delaware limited partnership, and
SUMMIT SUBORDINATED DEBT FUND II L.P., a Delaware limited partnership
(collectively, the "Pledgees").
RECITALS:
WHEREAS, the Pledgor and the Pledgees are parties to a Shareholders
Agreement of even date herewith (the "Shareholders Agreement"), pursuant to
which the Pledgee has agreed to grant the Put Right (as defined in the
Shareholders Agreement) to the Investors; and
WHEREAS, the Pledgees desire that the Pledgor secure the performance of his
liabilities and obligations in respect of the Put Right by granting to the
Pledgees a perfected first-priority lien and security interest in and to all
shares of Common Stock, no par value ("Common Stock"), of Clontech Laboratories,
Inc., a California Corporation (the "Company"), beneficially owned by the
Pledgor, and Pledgor is willing to grant such lien and security interest to the
Pledgees, upon the terms and conditions set forth herein;
NOW THEREFORE, the Pledgor hereby grants to the Pledgees a security
interest in, and assigns, transfers to and pledges with the Pledgee, the
following:
(i) all shares of Common Stock beneficially owned by the
Pledgor, which shares are hereby delivered to and deposited with the Pledgees as
security for full and timely performance of all liabilities and obligations in
respect of the Put Right;
(ii) any and all additional shares of Common Stock, stock options
or rights to acquire Common Stock of the Company, or other property subsequently
distributed with respect to the shares identified above in subsection (i), which
are to be delivered to and deposited with the Pledgee pursuant to the
requirements of Section 4 of this Agreement; and
(iii) the proceeds of any sale, exchange or disposition of the
property and securities described in subparagraphs (i) and/or (ii) above.
All securities and property so assigned, transferred to and pledged
with the Pledgee shall be herein referred to collectively as the "Pledged
Shares". The Pledgee shall hold the Pledged Shares in accordance with the
following terms and provisions:
1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR. The Pledgor
hereby warrants that (a) the Pledgor is the legal and beneficial owner and
holder of record of the Pledged Shares and has the right to pledge the Pledged
Shares, (b) the Pledged Shares are free from all liens, adverse claims and other
security interests (other than those created hereby), and (c) the pledge,
assignment and delivery of such Pledged Stock pursuant to this Agreement creates
a valid and perfected first-priority lien on and a security interest in such
shares of the Pledged Shares, and the proceeds thereof, subject to no prior
pledge, lien, mortgage,
1.
<PAGE>
hypothecation, security interest, charge, option or encumbrance, or to any
agreement purporting to grant to any third party a security interest in the
property or assets of the Pledgor which would include the Pledged Shares.
2. NO DISPOSITION, ETC. The Pledgor agrees that he will not sell,
assign, transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Pledged Shares, nor will he create, incur, or permit to exist
any pledge, lien, mortgage, hypothecation, security interest, charge, option, or
any other encumbrance with respect to any of the Pledged Shares, or any interest
therein, or any proceeds thereof, except for the security interest provided for
in this Agreement.
3. RIGHTS AND POWERS. The Pledgees may 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 Pledged Shares:
(a) accept in their discretion, but subject to the limitations of
paragraph 8, other property of the Pledgor in exchange for all or part of the
Pledged Shares and release such Pledged Shares to the Pledgor 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 Pledgees as substitute
security for the Put Right and all other indebtedness secured hereunder;
(b) perform such acts as are necessary to preserve and protect the
Pledged Shares and the rights, powers and remedies granted with respect to such
Pledged Shares by this Agreement; and
(c) transfer record ownership of the Pledged Shares to the Pledgees
or their nominees and receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Pledged Shares, provided and only if there exists at the time an
outstanding event of default under Section 9 of this Agreement.
Any action by the Pledgees pursuant to the provisions of this
paragraph 3 may be taken without prior notice to the Pledgor provided that
notice is provided to the Pledgor within ten days after the action. Expenses
reasonably incurred in connection with such action shall be payable by the
Pledgor.
4. NONRECOURSE. The Pledgor shall not be personally liable in any
respect for any liability, obligation or monetary damages resulting from the
breach or non-performance of Section 3 of the Shareholders Agreement except for
the Pledged Shares. The Pledgees agree that, in the event any of them pursues
any remedies available to them under Section 3 of the Shareholders Agreement or
this Agreement, the Pledgees shall not have any recourse against the Pledgor for
any deficiency, loss or claim of monetary damages or otherwise resulting
therefrom and recourse shall be had solely and exclusively against the Pledged
Shares.
5. DUTY TO DELIVER. Any new, additional or different securities which
may now or hereafter become distributable with respect to the Pledged Shares by
reason of (i) any stock dividend, stock split or reclassification of the capital
stock of the Company or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Company shall, upon receipt by the
Pledgor, be promptly delivered to and deposited with the Pledgees as pan of the
2.
<PAGE>
Pledged Shares hereunder. Such securities shall be accompanied by one or more
properly endorsed stock power assignments.
6. CARE OF PLEDGED SHARES. The Pledgees shall exercise reasonable care
in the custody and preservation of the Pledged Shares, but shall have no
obligation to initiate any action with respect to, or otherwise inform the
Pledgor of, any conversion, call, exchange right, preemption right, subscription
right, purchase offer or other right or privilege relating to or affecting the
Pledged Shares. The Pledgees shall have no duty to preserve the rights of the
Pledgor against adverse claims or to protect the Pledged Shares against the
possibility of a decline in market value. The Pledgees shall not be obligated
to take any action with respect to the Pledged Shares requested by the Pledgor
unless the request is made in writing and the Pledgees determine that the
requested action will not unreasonably jeopardize the value of the Pledged
Shares as security for the Put Right.
The Pledgees may at any time release and deliver all or pan of the Pledged
Shares to the Pledgor, and the receipt thereof by the Pledgor shall constitute a
complete and full acquittance for the Pledged Shares so released and delivered.
The Pledgees shall accordingly be discharged from any further liability or
responsibility for the Pledged Shares, and the released Pledged Shares shall no
longer be subject to the provisions of this Agreement.
7. PAYMENT OF TAXES AND OTHER CHARGES. The Pledgor shall pay, prior to
the delinquency date, all taxes, liens, assessments and other charges against
the Pledged Shares, and in the event of the Pledgor's failure to do so, the
Pledgees may at their election pay any or all of such taxes and charges without
contesting the validity or legality thereof.
8. TRANSFER OF PLEDGED SHARES. In connection with any transfer or
assignment of the Put Right, the Pledgees may transfer all or any part of the
Pledged Shares, and the transferee shall thereupon succeed to all the rights,
powers and remedies granted the Pledgees hereunder with respect to the Pledged
Shares so transferred. Upon such transfer, the Pledgees shall be fully
discharged from all liability and responsibility for the transferred Pledged
Shares.
9. RELEASE OF PLEDGED SHARES. Provided that the Put Right secured
hereunder shall at the time have been exercised in full the pledged shares of
Common Stock, together with any additional shares or securities which may
hereafter be pledged hereunder and which shall constitute the Pledged Shares,
shall be released from pledge and returned to the Pledgor in accordance with the
following provisions:
(a) Upon exercise of the Put Right in its entirety, the total number
of shares of the Common Stock or other securities held as Pledged Shares
hereunder shall be released to the Pledgor within thirty (30) days after
exercise.
(b) Any additional Pledged Shares which may hereafter be pledged and
deposited with the Pledgees (pursuant to the requirements of Section 4) with
respect to the shares of Common Stock pledged hereunder shall be released at the
same time the particular shares of Common Stock to which the additional Pledged
Shares relates are to be released in accordance with the applicable provisions
of Section 8(a).
3.
<PAGE>
10. EVENTS OF DEFAULT. The failure of the Pledgor to comply with Section
3 of the Shareholder Agreement, which failure is not cured within 5 business
days, shall constitute an event of default under this Agreement. Upon the
occurrence of any such event of default, the Pledgees may, at their election,
fully 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
Pledged Shares by public or private sale (as permissible under existing state
and federal securities laws) or to accept the Pledged Shares in full exchange of
the obligations contained in the Put Right secured hereunder.
11. OTHER REMEDIES. The rights, powers and remedies granted to the
Pledgees pursuant to the provisions of this Agreement shall be in addition to
all rights, powers and remedies granted to the Pledgees under any statute or
rule of law. Any forbearance, failure or delay by the Pledgees 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 Pledgees under this
Agreement shall continue in full force and effect unless such right, power or
remedy is specifically waived by an instrument executed by the Pledgees,
according to Section 12 of this Agreement.
12. COSTS AND EXPENSES. All expenses (including reasonable attorneys'
fees) incurred by the Pledgees in the exercise or enforcement of any right,
power or remedy granted it under this Agreement shall constitute a personal
liability of the Pledgor payable immediately upon demand.
13. WAIVERS, AMENDMENTS, AND APPLICABLE LAW. None of the terms or
provisions of this Agreement may be waived, altered, modified or amended except
by an instrument in writing, duly executed by all parties to this Agreement.
All obligations of the Pledgor hereunder shall be binding upon the successors
and assigns of the Pledgor, and shall, together with the rights and remedies of
the Pledgees hereunder, inure to the benefit of the Pledgees and their
respective successors and assigns. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
California.
14. 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.
15. EXEMPT TRANSFERS. This Stock Pledge Agreement shall not be construed
as prohibiting any transfer of Pledged Shares to the ancestors, descendants or
spouse or to trusts for the benefit of such persons of the Pledgor; provided
that: (A) the Pledgor shall inform the Pledgees of such transfer prior to
effecting it, and obtain the consent of each of the Pledgees (not to be
unreasonably withheld), and (B) the transferee shall furnish each of the
Pledgees with a written agreement to be bound by and comply with all provisions
of this Agreement. Such written agreement shall be in form and substance
satisfactory to the Pledgees in their sole discretion.
4.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Pledgor as of
the date first written above.
/s/ Ken Fong
---------------------------------------
KENNETH FONG, Pledgor
Address: 1020 E. Meadow Circle
Palo Alto, CA 94303
AGREED TO AND ACCEPTED BY:
SUMMIT VENTURES IV, L.P.
By: Summit Partners W, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV
Its General Partner
By: /s/ Gregory M. Avis
----------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
------------------------
General Partner
SUMMIT SUBORDINATED DEBT FUND II, L.P.
By: Summit Partners SD II, LLC
Its General Partner
By: /s/ Gregory M. Avis
----------------------------
General Partner
[SIGNATURE PAGE TO STOCK PLEDGE AGREEMENT]
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this _______ day of _________, 1998
by and between CLONTECH LABORATORIES, INC., a Delaware corporation (the
"Corporation"), and ________________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in _____
capacity as _________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as _________ of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as _______
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
_________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 41
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the
<PAGE>
proceeding was authorized by the Board of Directors of the Corporation,
(iii) such indemnification is provided by the Corporation, in its sole
discretion, pursuant to the powers vested in the Corporation under the Code, or
(iv) the proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded, and so notified the Corporation,
that there is an actual conflict of interest between the Corporation and Agent
in the conduct of the defense of such action or (iii) the Corporation shall not
in fact have employed counsel to assume the defense of such
<PAGE>
action, in each of which cases the fees and expenses of Agent's separate counsel
shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, PROVIDED THAT the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
<PAGE>
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(i) upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
<PAGE>
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
Clontech Laboratories, Inc.
-----------------------
-----------------------
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
CLONTECH LABORATORIES, INC.
By:
-------------------------------------
Title:
----------------------------------
AGENT
----------------------------------------
Address:
----------------------------------------
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<PAGE>
CLONTECH LABORATORIES, INC.
AMENDED AND RESTATED 1997 EQUITY INCENTIVE PLAN
ADOPTED SEPTEMBER 5, 1997
APPROVED BY STOCKHOLDERS ON SEPTEMBER 5, 1997
AMENDED AND RESTATED JULY 10, 1998
APPROVED BY STOCKHOLDERS JULY 10, 1998
PLAN TERMINATION DATE: JULY 9, 2008
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock appreciation rights, (iv) stock bonuses
and (v) rights to acquire restricted stock.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, 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) "CAUSE" means misconduct, including: (i) conviction of any felony or
any crime involving moral turpitude or dishonesty; (ii) participation in a fraud
or act of dishonesty against the Company; (iii) willful and material breach of
the Company's policies; (iv) intentional and material damage to the Company's
property; or (v) material breach of the Stock Award holder's Proprietary
Information and Inventions Agreement.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(f) "COMMON STOCK" means the common stock of the Company:
(g) "COMPANY" means Clontech Laboratories, Inc., a Delaware corporation.
<PAGE>
(h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting services and who is compensated
for such services or (ii) who is a member of the Board of Directors of an
Affiliate. However, the term "Consultant" shall not include Directors who are
paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(i) "CONTINUOUS SERVICE" means the Stock Award holder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant is not
interrupted or terminated. The Board or the chief executive officer of the
Company may determine, in that party's sole discretion, whether Continuous
Service shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board or the chief executive officer of the Company,
including sick leave, military leave, or any other personal leave; or
(ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(j) "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.
(k) "DIRECTOR" means a member of the Board of Directors of the Company.
(l) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any person employed by the Company or any Affiliate.
Neither service as a Director nor payment of a director's fee by the Company or
an Affiliate shall be sufficient to constitute "employment" by the Company or an
Affiliate.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) 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; or
(2) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(p) "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.
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<PAGE>
(q) "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.
(r) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, AND is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(s) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(t) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(v) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(w) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan, or if applicable, such other person who holds an outstanding Option.
(x) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, AND is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(y) "PLAN" means this Amended and Restated 1997 Equity Incentive Plan.
(z) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
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<PAGE>
(bb) "STOCK AWARD" means any right granted under the Plan, including any
Option, a stock appreciation right, a stock bonus and any 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.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) 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 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.
(2) 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.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(c) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members (the "Committee"), all of the members of
which Committee may be Non-Employee Directors and/or Outside Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board including the power to delegate to a subcommittee of two or more
Directors (who may or may not be Outside Directors or Non-Employee Directors)
any of the administrative powers to the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter mean the Committee or such
a subcommittee), subject, however, to such resolutions, not inconsistent with
the provisions of the Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(x) are not then subject to Section 16 of the Exchange Act and/or (y) are either
(i) 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 (ii) not
persons with respect to whom the Company wishes to comply with Section 162(m) of
the Code.
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<PAGE>
(d) All actions taken and all interpretations and determinations made by
the Board or Committee in good faith (including determinations of Fair Market
Value) shall be final and binding upon all Optionees, the Company and all other
interested persons. No member of the Board or Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan, and all members of the Board and Committee shall, in
addition to their right as directors, be fully protected by the Company with
respect to any such action, determination or interpretation.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 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 fourteen
thousand, two hundred eighty six (1,714,286) shares of Common Stock (the
"Share Reserve"). In addition, the number of shares granted pursuant to
stock bonuses shall at no time exceed ten percent (10%) of the then current
Share Reserve.
(b) If any Stock Award shall for any reason expire or otherwise terminate,
in whole or in part, without having been exercised in full, the stock not
acquired under such Stock Award shall revert to and again become available for
issuance under the Plan. Shares subject to stock appreciation rights exercised
in accordance with the Plan shall not be available for subsequent issuance under
the Plan. If any shares of Common Stock acquired pursuant to the exercise of an
Stock Awards shall for any reason be repurchased by the Company under a
repurchase option provided under the Plan, the stock repurchased by the Company
under such repurchase option shall revert to and again become available for
issuance under the Plan for all Stock Awards other than Incentive Stock
Options.
(c) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person 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 unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options
covering more than six hundred sixty-six thousand, six hundred sixty-six
(666,666) shares of Common Stock in any calendar year. This subsection 5(c)
shall not apply prior to the Listing Date and, following the Listing Date,
shall not apply until (i) the earliest of: (A) the first material
modification of the Plan (including any increase to the number of shares
reserved for issuance under the Plan in accordance with Section 4); (B) the
issuance of all of the shares of Common Stock reserved for issuance under the
Plan; (C) the expiration of the Plan; or
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<PAGE>
(D) the first meeting of stockholders at which directors 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 (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
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. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. 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 Incentive Stock Option on the date the Incentive Stock Option is
granted or such greater amount as required by Section 5(b). The exercise price
of each Nonstatutory Stock Option shall be determined by the Board.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or 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.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid at the time the Option is exercised, to the extent
permitted by applicable statutes and regulations, either (i) in cash or by check
or (ii) at the discretion of the Board, at the time of the grant of the Option,
under one of the following alternatives:
(1) 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;
(2) 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, held for the period required to avoid a
charge to the Company's reported earnings, and owned free and clear of any
liens, claims, encumbrances or security interests, which Common Stock shall be
valued at its fair market value on the date of exercise;
(3) Pursuant to a deferred payment alternative as described in the
Option Agreement, PROVIDED THAT, at any time that the Company is incorporated in
Delaware, payment of
6
<PAGE>
the Common Stock's "par value" (as defined in the Delaware General Corporation
Law) shall not be made by deferred payment;
(4) In any other form of legal consideration that may be acceptable
to the Board; or
(5) By any combination of the above methods.
(d) TRANSFERABILITY. 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 person to whom the Option is granted only
by such person. A Nonstatutory Stock Option may be transferable to the extent
expressly provided in the Option Agreement; PROVIDED, HOWEVER, that if the
Option Agreement does not specifically provide for transferability, then such
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution or pursuant to a domestic relations order, and
shall be exercisable during the lifetime of the person to whom the Nonstatutory
Stock Option is granted only by such person or any transferee pursuant to a
domestic relations order. Notwithstanding the foregoing, the person to whom the
Option is granted 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 Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
shall vest and become exercisable as provided in the Option Agreement.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Service (or such longer or shorter
period specified in the Option Agreement) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement provided, however, if the
Optionee is terminated for Cause, then the Option shall terminate on the date
Optionee's Continuous Service ceases (or such longer period specified in the
Option Agreement). If, after termination, the Optionee does not exercise his or
her Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Service (other
than upon the Optionee'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 or any material regulatory requirements of
any foreign jurisdiction, then the Option shall terminate on the earlier of (i)
the expiration of the term of the Option as set forth in the Option Agreement,
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
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<PAGE>
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Service
terminates as a result of the Optionee's Disability, the Optionee may exercise
his or her Option (to the extent that the Optionee was entitled to exercise it
at the date of termination, taking into account any post-termination amendments
to the Option Agreement), 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), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
at the date of termination, the Optionee is not entitled to exercise the entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan no later than
thirty (30) days following the date of termination. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within the three (3) month or twelve (12) month periods referred to above
after the termination of, the Optionee's Continuous Service, the Option may be
exercised (to the extent the Optionee was entitled to exercise the Option at the
date of death, taking into account any post-termination amendments to the Option
Agreement) by the Optionee'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 Optionee's death pursuant to subsection 6(d), but
only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise the entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan no later than thirty (30) days following the date of
termination. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time before the Optionee'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. Any unvested
shares so purchased shall be subject to a repurchase right in favor of the
Company or any other restriction the Board determines appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee 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 terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall 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) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option
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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 fifty thousand dollar ($150,000) annual limitation on exercisability
of Incentive Stock Options described in subsection 11(d) of the Plan 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"
or 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. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
(a) Each stock bonus or 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 stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or 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 as appropriate:
(1) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such agreement, but in no event shall the purchase price be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made. Notwithstanding the foregoing, the Board may determine that
eligible participants in the Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company
for its benefit.
(2) TRANSFERABILITY. A stock bonus or restricted stock purchase
agreement may be transferable to the extent expressly provided in the Stock
Award Agreement; PROVIDED, HOWEVER, that if the Stock Award Agreement does not
specifically provide for transferability, then such stock bonus or restricted
stock purchase award shall not be transferable except by will or the laws of
descent and distribution or pursuant to a domestic relations order, and shall be
exercisable during the lifetime of the person to whom the stock bonus or
restricted stock purchase award is granted only by such person or any transferee
pursuant to a domestic relations order, so long as stock awarded under such
agreement remains subject to any restrictions pursuant to the agreement.
(3) CONSIDERATION. The purchase price of stock acquired pursuant to
a restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the person to whom the stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Notwithstanding the foregoing, the Board may award
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<PAGE>
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(4) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option or reacquisition right in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(5) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of stock held by that person which have not vested as
of the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person, subject to the
provisions of Section 12.
(6) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock
appreciation rights shall be authorized for issuance under the Plan:
a. TANDEM RIGHTS. A "Tandem Right" means a stock
appreciation right granted appurtenant to an Option which is subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains with the following exceptions: The Tandem Right shall require the
holder to elect between the exercise of the underlying Option for shares of
Common Stock and the surrender, in whole or in part, of such Option for an
appreciation distribution. The appreciation distribution payable on the
exercised the Tandem Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the Option surrender) in an amount up to the excess of (A) the Fair
Market Value (on the date of the Option surrender) of the number of shares of
Common Stock covered by that portion of the surrendered Option in which the
Optionee is vested over (B) the aggregate exercise price payable for such vested
shares.
b. CONCURRENT RIGHTS. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option which applies to all or a
portion of the shares of Common Stock subject to the underlying Option and which
is subject to the same terms and conditions applicable to the particular Option
grant to which it pertains with the following exceptions: A Concurrent Right
shall be exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to which the
Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the exercise of the Concurrent Right) in an amount equal to such portion
as determined by the Board at the time of the grant of the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the Concurrent
Right) of the vested shares of Common Stock purchased under the underlying
Option which have Concurrent Rights appurtenant to them over (B) the aggregate
exercise price paid for such shares.
c. INDEPENDENT RIGHTS. An "Independent Right" means a
stock appreciation right granted independently of any Option but which is
subject to the same terms and conditions applicable to a Nonstatutory Stock
Option with the following exceptions:
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An Independent Right shall be denominated in share equivalents. The
appreciation distribution payable on the exercised Independent Right shall be
not greater than an amount equal to the excess of (a) the aggregate Fair Market
Value (on the date of the exercise of the Independent Right) of a number of
shares of Common Stock equal to the number of share equivalents in which the
holder is vested under such Independent Right, and with respect to which the
holder is exercising the Independent Right on such date, over (b) the aggregate
Fair Market Value (on the date of the grant of the Independent Right) of such
number of shares of Common Stock. The appreciation distribution payable on the
exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the exercise of the Independent Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights
appurtenant to Incentive Stock Options may be granted only to Employees. The
"Section 162(m) Limitation" provided in subsection 5(c) and any authority to
reprice Options shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation
right, the holder shall provide written notice of exercise to the Company in
compliance with the provisions of the Stock Award Agreement evidencing such
right. Except as provided in subsection 5(c) regarding the "Section 162(m)
Limitation," no limitation shall exist on the aggregate amount of cash payments
that the Company may make under the Plan in connection with the exercise of a
stock appreciation right.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board shall have the authority to effect, at any time and from
time to time, (i) the repricing of any outstanding Options and/or (ii) with the
consent of the affected holders of Options the cancellation of any outstanding
Options under the Plan and the grant in substitution therefor of new Options
under the Plan covering the same or different numbers of shares of Common Stock.
The exercise price per share shall be not less than that specified under the
Plan for newly granted Stock Awards. Notwithstanding the foregoing, the Board
may grant an Option with an exercise price lower than that set forth above if
such Option is granted as part of a transaction to which Section 424(a) of the
Code applies.
(b) Shares subject to an Option canceled under this Section 8 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 8, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this Section
8 shall be applicable only to the extent required by Section 162(m) of the Code.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
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(b) 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.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) 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, 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) No Optionee 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 person has satisfied all requirements for exercise of the
Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Optionee any right to continue in the
employ of the Company or any Affiliate (or to continue acting as a Director or
Consultant) or shall affect the right of the Company or any Affiliate to
terminate the employment of any Employee with or without Cause, the right of the
Company's Board of Directors and/or the Company's stockholders to remove any
Director pursuant to the terms of the Company's Bylaws and the provisions of
applicable laws, or the right to terminate the relationship of any Consultant
pursuant to the terms of such Consultant's agreement with the Company or
Affiliate to which such Consultant is providing services.
(d) 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 Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred fifty thousand
dollars ($150,000), 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) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(a)(2), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and
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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 (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the Stock Award for
such person'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 (i) 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 (ii) 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 require the Optionee to provide such other representations, written
assurances or information which the Company shall determine is necessary,
desirable or appropriate to comply with applicable securities and other laws as
a condition of granting an Option to such Optionee or permitting the Optionee to
exercise such Option. 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) To the extent provided by the terms of a Stock Award Agreement, the
Optionee 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 or by a combination of such means (in addition to the
Company's right to withhold from any compensation paid to the Optionee by the
Company): (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the Optionee as
a result of the exercise or acquisition of stock under the Stock Award; or (3)
delivering to the Company owned and unencumbered shares of the Common Stock of
the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) 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 shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares 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 shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board, the determination of which
shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company".)
(b) In the event of a Change in Control (as defined herein) any surviving
corporation or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall
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<PAGE>
substitute similar stock awards (including an award to acquire the same
consideration paid to the shareholders in the transaction described in this
subsection 12(b)) for those outstanding under the Plan. In the event any
surviving or acquiring corporation refuses to assume such Stock Awards or to
substitute similar stock awards for those outstanding under the Plan, then with
respect to persons whose Continuous Service has not terminated prior to such
Change in Control: (i) the vesting (and, if applicable, the exercisability) of
Stock Awards held by such persons shall be accelerated immediately prior to such
event, and the Stock Awards terminated if not exercised at or prior to such
event, and (ii) any Company repurchase option or reacquisition right with
respect to shares acquired by such persons under a Stock Award shall lapse
immediately prior to such event and the shares held by such persons shall be
fully vested. With respect to any other Stock Awards outstanding under the Plan,
such Stock Awards shall terminate if not exercised prior to such event.
For purposes of this Plan, a "Change in Control" shall mean: (i) a sale of
all or substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation or a reverse
merger in which the Company is the surviving corporation but the shares of the
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 (other than (a) a merger or consolidation in which
stockholders immediately before the merger or consolidation have, immediately
after the merger or consolidation, greater stock voting power of the acquiring
or controlling corporation, and in no event less than a majority of such stock
voting power, (b) a transaction the principal purpose of which is to change the
State of the Company's incorporation, or (c) a merger of the Company into any of
its wholly owned subsidiaries); or (iii) an acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors.
(c) In the event of a dissolution or liquidation of the Company, any Stock
Awards outstanding under the Plan shall terminate if not exercised prior to such
event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 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 for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) 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 promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
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(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees 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) Rights and obligations 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 person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Awards; provided, however, that the rights under any Stock
Award shall not be impaired by any such amendment unless (i) the Company
requests the consent of the person to whom the Stock Award was granted and (ii)
such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) 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) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as of the Listing Date, but no Stock Awards
granted under the Plan 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.
16. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
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CLONTECH LABORATORIES, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON JULY 10, 1998
APPROVED BY STOCKHOLDERS ON JULY 10, 1998
1. PURPOSE.
(a) The purpose of the 1998 Non-Employee Directors' Stock Option Plan (the
"Plan") is to provide a means by which each director of CLONTECH LABORATORIES,
INC. (the "Company") who is not otherwise at the time of grant an employee of or
consultant to the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "AFFILIATE" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee of the Board, as provided in subparagraph 2(b).
(a) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). 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, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to options
granted under the Plan shall not exceed in the aggregate two hundred thousand
(200,000) shares of the Company's common stock. If any option granted under
the Plan shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such option shall again
become available for the Plan. If any shares of the Company's common stock
acquired pursuant to the exercise of an option shall for any reason be
repurchased by the Company under a repurchase option
1.
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provided under the Plan, the stock repurchased by the Company under such
repurchase option shall revert to and again become available for issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is first elected or appointed to the Board as a
Non-Employee Director after the Effective Date shall automatically be
granted, on the date of such initial election or appointment, an option to
purchase thirteen thousand three hundred thirty-three (13,333) shares of
common stock of the Company on the terms and conditions set forth herein
(hereinafter, an "Initial Grant").
(b) Each Non-Employee Director who is serving as a Non-Employee Director
immediately following each anniversary of the closing of the Company's initial
public offering (the "Anniversary Date"), commencing with the Anniversary Date
occurring in calendar year 1999, shall automatically be granted, on such date,
an option to purchase six thousand six hundred sixty-six (6,666) shares of
common stock of the Company, which amount shall be pro-rated for any
Non-Employee Director who has not continuously served as a Non-Employee
Director for the twelve (12)-month period prior to the date of such Anniversary
Date, on the terms and conditions set forth herein (hereinafter, an "Annual
Grant").
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date
("Expiration Date") ten (10) years from the date of grant. If the optionee's
service as a Non-Employee Director or employee of or consultant to the
Company or any Affiliate terminates for any reason or for no reason, the
option shall terminate on the earlier of the Expiration Date or the date
three (3) months following the date of termination of such service;
PROVIDED, HOWEVER, that (i) if such termination of service is due to the
optionee's death, the option shall terminate on the earlier of the Expiration
Date or eighteen (18) months following the date of the optionee's death or
(ii) if such termination of service is due to the optionee's permanent and
total disability within the meaning of Section 22(e)(3) of the Code
("Disability"), the option shall terminate on the earlier of the Expiration
Date or twelve (12) months following the date of the optionee's Disability.
In any and all circumstances, an option may be exercised following
termination of the optionee's service as a Non-Employee Director of the
Company or any Affiliate only as to that number of shares as to which it was
exercisable as of the date of termination of such service under the
provisions of subparagraph 6(e).
2.
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(b) The exercise price of each option shall be one hundred percent (100%)
of the Fair Market Value of the stock (as defined in subsection 9(d)) subject to
such option on the date such option is granted.
(c) The optionee may elect to make payment of the exercise price under one
of the following alternatives:
(i) In cash (or check) at the time of exercise;
(ii) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date immediately preceding the date of exercise;
(iii) Pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock; or
(iv) Payment by a combination of the methods of payment specified in
subparagraph 6(c)(i) through 6(c)(iii) above.
(d) An option shall be transferable only to the extent specifically
provided in the option agreement; PROVIDED, HOWEVER, that if the option
agreement does not specifically provide for the transferability of the option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, or pursuant to a domestic relations order, and shall
be exercisable during the lifetime of the person to whom the option is granted
only by such person or transferee pursuant to a domestic relations order.
Notwithstanding the foregoing, the optionee 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 optionee, shall thereafter be entitled to
exercise the option.
(e) (i) An Initial Grant and an Annual Grant shall vest (i.e., become
exercisable) in forty-eight (48) equal monthly installments over a four (4)-year
period measured from the date of grant of the option, PROVIDED THAT, with
respect to any grant under the Plan, the optionee has, during the entire period
prior to such vesting date, continuously served as a Non-Employee Director or
employee of or consultant to the Company or any Affiliate of the Company.
(f) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising any such
option: (i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if
3.
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(x) the issuance of the shares upon the exercise of the option has been
registered under a then-currently-effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or (y), 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 require any optionee to provide such other
representations, written assurances or information which the Company shall
determine is necessary, desirable or appropriate to comply with applicable
securities laws as a condition of granting an option to the optionee or
permitting the optionee to exercise the option. 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.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such 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.
(h) The option may, but need not, include a provision whereby the optionee
may elect at any time before the optionee's service as a Non-Employee Director
or employee of or consultant to the Company or any Affiliate 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. Any unvested shares so purchased shall
be subject to a repurchase right in favor of the Company or any other
restriction the Board determines appropriate.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of common stock required
to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; PROVIDED, HOWEVER, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. 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 options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
4.
<PAGE>
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) 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 option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or stockholders or any Affiliate to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of the Delaware
General Corporation Law (or the applicable laws of the Company's state of
incorporation if the Company's state of incorporation should change in the
future).
(c) No Non-Employee Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) As used in this Plan, "Fair Market Value" means, as of any date, the
value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market, 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 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; or
(ii) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, 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 and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board,
the determination of which shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company.")
(b) In the event of a Change in Control (as defined herein) any surviving
corporation or acquiring corporation shall assume any options outstanding under
the Plan or shall substitute
5.
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similar options (including an award to acquire the same consideration paid to
the shareholders in the transaction described in this subsection 10(b)) for
those outstanding under the Plan. In the event any surviving or acquiring
corporation refuses to assume such options or to substitute similar options for
those outstanding under the Plan, then with respect to persons whose Continuous
Service has not terminated prior to such Change in Control: (i) the vesting
(and, if applicable, the exercisability) of options held by such persons shall
be accelerated immediately prior to such event, and the options terminated if
not exercised at or prior to such event, and (ii) any Company repurchase option
or reacquisition right with respect to shares acquired by such persons under a
Stock Award shall lapse immediately prior to such event and the shares held by
such persons shall be fully vested. With respect to any other options
outstanding under the Plan, such options shall terminate if not exercised prior
to such event.
For purposes of this Plan, a "Change in Control" shall mean: (i) a sale of
all or substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation or a reverse
merger in which the Company is the surviving corporation but the shares of the
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 (other than (a) a merger or consolidation in which
stockholders immediately before the merger or consolidation have, immediately
after the merger or consolidation, greater stock voting power of the acquiring
or controlling corporation, and in no event less than a majority of such stock
voting power, (b) a transaction the principal purpose of which is to change the
State of the Company's incorporation, or (c) a merger of the Company into any of
its wholly owned subsidiaries); or (iii) an acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors.
(c) In the event of a dissolution or liquidation of the Company, any
options outstanding under the Plan shall terminate if not exercised prior to
such event.
11. AMENDMENT OF THE PLAN OR OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, no
amendment to the Plan, including an amendment to increase the size of the share
reserve (except as provided in paragraph 10 relating to adjustments upon changes
in stock), shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 promulgated under the Exchange Act or any Nasdaq or
securities exchange listing requirements.
(b) Rights and obligations under any option granted before any amendment
of the Plan or the agreement documenting such option shall not be impaired by
such amendment unless (i) the Company requests the consent of the person to whom
the option was granted and (ii) such person consents in writing.
6.
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12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on July 9, 2008.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on 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 (the "Effective Date").
(b) Notwithstanding any other provision in the Plan to the contrary, no
option otherwise authorized under the Plan shall be granted unless and until
sufficient shares of the Company's common stock to be issued under the Plan have
been approved by the stockholders of the Company.
14. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
7.
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CLONTECH LABORATORIES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON JULY 10, 1998
APPROVED BY THE STOCKHOLDERS ON JULY 10, 1998
1. PURPOSE.
(a) The purpose of this 1998 Employee Stock Purchase Plan (the "Plan") is
to provide a means by which employees of Clontech Laboratories, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board or the Committee shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board or the Committee, in the exercise of this power, may correct any
defect, omission or inconsistency in
1.
<PAGE>
the Plan, in a manner and to the extent it shall deem necessary or expedient to
make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board or the Committee deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). 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, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate four hundred fifty thousand
(450,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having
been exercised, the Common Stock not purchased under such right shall again
become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder, a right with a lower
2.
<PAGE>
exercise price (or an earlier-granted right, if two rights have identical
exercise prices), will be exercised to the fullest possible extent before a
right with a higher exercise price (or a later-granted right, if two rights have
identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of
this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's
3.
<PAGE>
rights to purchase stock of the Company or any Affiliate to accrue at a rate
which exceeds thirty-seven thousand five hundred dollars ($37,500) of fair
market value of such stock (determined at the time such rights are granted)
for each calendar year in which such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board or
the Committee may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding fifteen percent (15%) of such
employee's Earnings (as defined in subparagraph 7(a)) during the period which
begins on the Offering Date (or such later date as the Board or the Committee
determines for a particular Offering) and ends on the date stated in the
Offering, which date shall be no later than the end of the Offering. The Board
or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering an enrollment agreement to the Company within the time
specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such
4.
<PAGE>
employee's Earnings during the Offering. "Earnings" is defined as an employee's
regular salary or wages (including amounts thereof elected to be deferred by the
employee, that would otherwise have been paid, under any arrangement established
by the Company that is intended to comply with Section 125, Section 401(k),
Section 402(e)(3), Section 402(h) or section 403(b) of the Code, and also
including any deferrals under a non-qualified deferred compensation plan or
arrangement established by the Company), and also, if determined by the Board or
the Committee and set forth in the terms of the Offering, may include any or all
of the following: (i) overtime pay, (ii) commissions, (iii) bonuses, incentive
pay, profit sharing and other remuneration paid directly to the employee, and/or
(iv) other items of remuneration not specifically excluded pursuant to the Plan.
Earnings shall not include the cost of employee benefits paid for by the Company
or an Affiliate, education or tuition reimbursements, imputed income arising
under any group insurance or benefit program, traveling expenses, business and
moving expense reimbursements, income received in connection with stock options,
contributions made by the Company or an Affiliate under any employee benefit
plan, and similar items of compensation, as determined by the Board or the
Committee. The payroll deductions made for each participant shall be credited
to an account for such participant under the Plan and shall be deposited with
the general funds of the Company. A participant may reduce (including to zero)
or increase such payroll deductions, and an eligible employee may begin such
payroll deductions, after the beginning of any Offering only as provided for in
the Offering. A participant may make additional payments into his or her
account only if specifically provided for in the Offering and only if the
participant has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Such withdrawal may be elected at any time prior to the end of the Offering
except as provided by the Board or the Committee in the Offering. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's right
to acquire Common Stock under that Offering shall be automatically terminated.
A participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new enrollment agreement in
order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of a participant's employment with the Company and
any designated Affiliate, for any reason, and the Company shall distribute to
such terminated employee all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the terminated employee), under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
5.
<PAGE>
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. Unless
otherwise provided for in the applicable Offering, no fractional shares shall be
issued upon the exercise of rights granted under the Plan. The amount, if any,
of accumulated payroll deductions remaining in each participant's account after
the purchase of shares which is less than the amount required to purchase one
share of stock on the final Purchase Date of an Offering shall be held in each
such participant's account for the purchase of shares under the next Offering
under the Plan, unless such participant withdraws from such next Offering, as
provided in subparagraph 7(b), or is no longer eligible to be granted rights
under the Plan, as provided in paragraph 5, in which case such amount shall be
distributed to the participant after such final Purchase Date, without interest.
The amount, if any, of accumulated payroll deductions remaining in any
participant's account on the final Purchase Date of an Offering after the
purchase of shares which is equal to or in excess of the value of one whole
share of common stock shall be distributed in full to the participant after such
Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall at all times keep available as authorized but unissued shares or treasury
shares that number of shares of stock required to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
6.
<PAGE>
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights granted
under the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, 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 and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's 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; or (4) the acquisition by
any person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan,
(ii) such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company
7.
<PAGE>
within twelve (12) months before or after the adoption of the amendment if such
amendment requires stockholder approval in order for the Plan to obtain employee
stock purchase plan treatment under Section 423 of the Code or to comply with
the requirements of Rule 16b-3 promulgated under the Exchange Act or any Nasdaq
or securities exchange requirements.
(b) The Board or the Committee may amend the Plan in any respect the Board
or the Committee 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 employee stock purchase
plans and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Committee in its discretion, may suspend or terminate
the Plan at any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under the Plan comply with the requirements of Section 423 of the
Code.
8.
<PAGE>
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on 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
(the "Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan had been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
17. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
9.
<PAGE>
CLONTECH LABORATORIES, INC.
SECURITIES PURCHASE AGREEMENT
DATED AS OF
SEPTEMBER 9, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of the Securities . . . . . . . . . . . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . 2
2.1 Organization, Good Standing and Qualification . . . . . . . . . . . 2
2.2 Authorization, Validity and Enforceability. . . . . . . . . . . . . 3
2.3 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Valid Issuance; Title to Securities . . . . . . . . . . . . . . . . 4
2.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 6
2.10 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . 7
2.11 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . 7
2.12 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.13 Compliance with Laws and Instruments. . . . . . . . . . . . . . . . 8
2.14 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.15 Title to Property and Assets. . . . . . . . . . . . . . . . . . . . 9
2.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . 9
2.17 Proprietary Information Agreement . . . . . . . . . . . . . . . . .10
2.18 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . .10
2.19 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.20 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.21 Related Party Transactions. . . . . . . . . . . . . . . . . . . . .14
2.22 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . .14
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
2.24 Real Property Holding Corporation Status. . . . . . . . . . . . . .14
2.25 Environmental and Safety Laws . . . . . . . . . . . . . . . . . . .14
2.26 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
2.27 Exemption from Registration . . . . . . . . . . . . . . . . . . . .16
2.28 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.29 Broker Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.30 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
3. INVESTMENT REPRESENTATION OF THE INVESTORS. . . . . . . . . . . . . . . .17
4. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT THE CLOSING . . . . . . . . .17
4.1 Representations and Warranties. . . . . . . . . . . . . . . . . . .17
4.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.3 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . .17
4.5 Restated Articles . . . . . . . . . . . . . . . . . . . . . . . . .18
4.6 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
4.7 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . .18
4.8 Investor Rights Agreement . . . . . . . . . . . . . . . . . . . . .18
4.9 Right of First Refusal and Co-Sale Agreement. . . . . . . . . . . .18
4.10 Indemnification Agreement . . . . . . . . . . . . . . . . . . . . .18
4.11 Stock Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . .18
4.12 Securities Law Compliance . . . . . . . . . . . . . . . . . . . . .18
4.13 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . .19
4.14 Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . .19
4.15 No Injunction or Illegality . . . . . . . . . . . . . . . . . . . .19
4.16 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
5. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
5.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
6. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
6.1 Survival of Representations and Warranties. . . . . . . . . . . . .21
6.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
6.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
6.4 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
6.5 Entire Agreement; Waivers and Amendments. . . . . . . . . . . . . .23
6.6 Assignment; Binding Effect. . . . . . . . . . . . . . . . . . . . .23
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
6.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
6.8 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . .23
6.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .23
6.10 Strict Construction . . . . . . . . . . . . . . . . . . . . . . . .23
6.11 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
Exhibits
A Form of Restated Articles
B Form of Note
C Form of Warrant
D Form of Investor Rights Agreement
E Form of Right of First Refusal and Co-Sale Agreement
F Form of Indemnification Agreement
G Opinion of Counsel to the Company
Schedules
Schedule of Investors
Disclosure Schedule
iii.
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made as of September 9, 1997, by and
among CLONTECH LABORATORIES, INC., a California corporation (the "Company"), and
each of the persons named in the Schedule of Investors attached hereto (each, an
"Investor" and collectively, the "Investors"). Except as otherwise provided
herein, capitalized terms used herein are defined in Section 5 hereof.
WITNESSETH:
WHEREAS, the Company wishes to issue and sell to the Investors, and the
Investors wish to purchase from the Company, in the aggregate, (i) $6,000,000 in
aggregate principal amount of 12% Subordinated Notes due September 9, 2004,
substantially in the form of Exhibit B hereto (the "Notes"), and (ii) warrants,
substantially in the form of Exhibit C hereto (the "Warrants" and, collectively
together with the Notes, the "Securities"), entitling the holder(s) thereof to
purchase from the Company 901,879 shares (subject to adjustment as provided
therein) of its Common Stock, no par value per share ("Common Stock"), all upon
the terms and subject to the conditions set forth herein; and
WHEREAS, concurrently herewith, the Investors and the majority shareholder
of the Company are entering into a Stock Purchase Agreement (the "Stock Purchase
Agreement"), pursuant to which such shareholder has agreed to sell 4,525,715
shares (the "Common Shares") of Common Stock to the Investors;
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
1.1 SALE AND ISSUANCE OF THE SECURITIES.
(a) Prior to the Closing (as defined below), the Company
shall adopt and file the Restated Articles of Incorporation in the form attached
hereto as Exhibit A (the "Restated Articles") with the Secretary of State of the
State of California.
(b) Subject to the terms and conditions set forth in this
Agreement, the Investors agree to purchase from the Company, and the Company
agrees to issue and sell to the Investors, collectively, at the Closing, (i) the
Notes for an aggregate purchase price of $6,000,000 and (ii) the Warrants for an
aggregate purchase price of $25,000. Each Investor agrees to purchase the
amounts of such respective Securities, at the respective purchase prices, set
forth opposite such Investor's name on the Schedule of Investors attached
hereto. The sale of Securities to each Investor shall constitute a separate
sale hereunder.
1.
<PAGE>
1.2 CLOSING.
(a) The closing of the purchase and sale of the Securities
hereunder (the "Closing") shall take place at the offices of Brobeck, Phleger &
Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, at
10:00 a.m. on September 9, 1997, or at such other time and place as may be
mutually agreed upon by the Company and the Investors. The date on which the
Closing occurs is referred to herein as the "Closing Date."
(b) At the Closing, the Company shall issue and deliver to
each Investor the amount of Notes and Warrants set forth opposite such
Investor's name on the Schedule of Investors attached hereto, in each case
registered in the name of such Investor or its nominee, against payment of the
purchase price for the Securities by wire transfer of immediately available
funds to an account designated by the Company in a written notice delivered to
such Investor not later than two (2) business days prior to the Closing Date.
1.3 LEGENDS.
(a) Each certificate representing the Securities issued and
delivered at the Closing shall be imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT,
OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER AND IN COMPLIANCE
WITH STATE SECURITIES LAWS."
(b) Notwithstanding the foregoing, upon receipt by the
Company of a legal opinion or other evidence reasonably satisfactory to it of
the termination of the requirement that all or any part of any of the foregoing
legends be placed upon a certificate and upon the written request of the holders
of the Securities represented thereby, the Company shall issue certificates for
such securities that do not bear such legends.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the Disclosure Schedule attached hereto, specifically identifying the relevant
subsections hereof, the Company hereby represents and warrants to each of the
Investors as follows:
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 full corporate power and authority and
all material licenses and authorizations to own, lease and operate its assets
and Properties and to conduct its business as now conducted and as proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified and in good standing, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the business,
operations, assets, Properties, liabilities, condition (financial or otherwise),
results of operations, or prospects of the Company and its Subsidiaries, taken
as a whole (a "Material Adverse Effect").
2.
<PAGE>
2.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The Company has
full corporate power and authority to execute and deliver this Agreement, the
Restated Articles, the Notes, the Warrants and the Investor Rights Agreement,
the Co-Sale Agreement and the Indemnification Agreement, and all other
agreements and instruments contemplated hereby to which the Company is a party
(collectively, together with the Stock Purchase Agreement and all agreements and
instruments contemplated thereby, the "Transaction Documents"), to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby, including without limitation the issuance and
sale of the Securities hereunder. The execution, delivery and performance of
this Agreement and each other Transaction Document to which it is a party and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by all requisite corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize the execution, delivery and performance of this Agreement
or any other Transaction Document to which it is a party or the consummation of
any of the transactions contemplated hereby or thereby. This Agreement has been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, and each other Transaction Document to which
it is a party will, upon due execution and delivery thereof, constitute the
legal, valid and binding obligation of the Company, in each case enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws relating to creditors' rights generally and by general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
2.3 NO CONFLICTS. The execution and delivery by the Company of
this Agreement and each other Transaction Document to which it is a party, the
performance by the Company of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby (including
without limitation, the amendment of the articles of incorporation of the
Company and the offer, sale and issuance of the Securities hereunder and any
securities issuable upon exercise or conversion of the Securities), do not and
will not conflict with, result in any breach or violation of, constitute a
default under (or an event which with the giving of notice or the lapse of time
or both would constitute a default under), give rise to any right of termination
or acceleration of any right or obligation of the Company or any of its
Subsidiaries under, or result in the creation of any Lien or Encumbrance upon
any assets or Properties of the Company or any of its Subsidiaries by reason of
the terms of, (a) the articles of incorporation, bylaws or other charter or
organizational documents of the Company or any or its Subsidiaries, (b) any
material Contract to which the Company or any of its Subsidiaries is a party or
by or to which any of them or their assets or Properties may be bound or
subject, or (c) any order, writ, judgment, injunction, award, decree, law,
statute, ordinance, role or regulation applicable to the Company.
2.4 CONSENTS AND APPROVALS. No consent, approval, authorization,
license or order of, registration, qualification, designation, declaration or
filing with, or notice to, any Governmental Entity or any other Person is
necessary to be obtained, made or given by the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement or
any other Transaction Document to which it is a party, the performance by the
Company of its obligations hereunder and thereunder, and the consummation of the
transactions
3.
<PAGE>
contemplated hereby and thereby, other than the filing of the Restated Articles
with the Secretary of State of the State of California (which will be completed
prior to the Closing).
2.5 CAPITALIZATION.
(a) The authorized capital stock of the Company consists,
and at all times prior to the Closing will consist, solely of Twenty Million
shares of Common Stock, of which Six Million are issued and outstanding. Upon
consummation of the Closing and the 3-for-1 forward stock split, the authorized
capital stock of the Company will consist solely of Thirty Million shares of
Common Stock, of which Eighteen Million will be issued and outstanding, 901,879
will be reserved solely for issuance and delivery upon exercise of Warrants and
2,571,429 will be reserved solely for issuance pursuant to the Company's 1997
Equity Incentive Plan. Except as set forth above in this paragraph, no common
stock, preferred stock, equity interest, stock appreciation right, phantom
stock, profit participation right, or other equity or equity derivative security
of any kind of the Company is (or at the Closing will be) authorized, issued or
outstanding.
(b) All of the outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and non-assessable, and
were issued in accordance with the registration or qualification provisions of
the Securities Act of 1933, as amended (including the rules and regulations
thereunder and any successor statute, the "Securities Act"), and all applicable
state securities laws. Section 2.5 of the Disclosure Schedule sets forth a true
and complete list of securityholders of the Company. Each of the Persons
identified on Section 2.5 of the Disclosure Schedule owns of record and, to the
best of the Company's knowledge, beneficially, free and clear of any Lien or
Encumbrance, the number of shares of each particular class or series of capital
stock of the Company as set forth opposite such Person's name on Section 2.5 of
the Disclosure Schedule. The Company is not a party or subject to any Contract,
and to the best of the Company's knowledge after due inquiry there is no
Contract between or among any Persons, which affects or relates to the voting or
transfer of any securities of the Company.
(c) Except for (i) the rights of the Investors to purchase
the Securities under this Agreement and to purchase the Common Shares under the
Stock Purchase Agreement, and (ii) upon consummation of the Closing, the
Warrants and the rights provided in Sections 2.6 and 2.7 of the Investor Rights
Agreement and in the Co-Sale Agreement, there are no subscriptions, options,
warrants, calls, commitments, preemptive rights or other rights of any kind
(absolute, contingent or otherwise) to purchase or otherwise receive, nor any
securities or instruments of any kind convertible into or exchangeable for, any
capital stock (including, without limitation, outstanding, authorized but
unissued, unauthorized, treasury or other shares thereof) or other equity
interest, equity security or equity derivative security of any kind of the
Company.
2.6 VALID ISSUANCE; TITLE TO SECURITIES.
(a) The Securities have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued. The issuance,
sale and delivery of the Securities as contemplated by this Agreement are not
subject to any preemptive right, right of
4.
<PAGE>
first refusal, right of first offer or similar right. Upon such issuance, each
Investor (or its nominee) will acquire good and marketable title to each of the
Securities set forth opposite its name on the Schedule of Investors (other than
restrictions on transferability expressly set forth in applicable Federal and
state securities laws), and will be entitled to all the rights and benefits of a
holder of such Securities. The Common Shares, taken together as a whole, will
on the Closing Date represent not less than 22% of the total voting power of all
capital stock or other voting securities of the Company outstanding (excluding
those shares reserved for the exercise of the Warrants).
(b) The Company has authorized and reserved solely for
issuance and delivery upon exercise of the Warrants, at least the number of
shares of Common Stock issuable upon exercise of all then outstanding Warrants
(the "Warrant Shares"). All of the Warrant Shares, when issued in accordance
with the terms of the Warrants, will be duly authorized, validly issued, fully
paid, non-assessable. The issuance and delivery of the Warrant Shares as
contemplated by this Agreement are not subject to any preemptive right, right of
first refusal, right of first offer or similar right.
(c) Except as provided in the Investor Rights Agreement,
the Company has not granted or agreed to grant any registration rights
(including piggyback rights), rights of first refusal, rights of first offer, or
"tag-along" or co-sale rights to any Person. Upon consummation of the Closing,
no securityholder of the Company will have any registration or other rights in
addition to those 'being granted to the Purchaser in connection with the
transactions contemplated hereby.
2.7 SUBSIDIARIES.
(a) Section 2.7 of the Disclosure Schedule correctly sets
forth the name of each Subsidiary of the Company and the jurisdiction of its
incorporation or organization. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, and has full power and
authority and all material licenses and authorizations to own, lease and operate
its assets and Properties and to conduct its business as now conducted and as
proposed to be conducted. Each Subsidiary of the Company is duly qualified to
transact business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified and in good standing,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(b) There are no subscriptions, options, warrants, calls,
commitments, preemptive rights or other rights of any kind (absolute, contingent
or otherwise) to purchase or otherwise receive, nor any securities or
instruments of any kind convertible into or exchangeable for, any capital stock
(including, without limitation, outstanding, authorized but unissued,
unauthorized, treasury or other shares thereof) or other equity interest, equity
security or equity derivative security of any kind of any Subsidiary of the
Company. No Subsidiary of the Company has issued any securities in violation of
any preemptive or similar rights. All of the outstanding capital stock of each
Subsidiary of the Company is duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding capital stock of such Subsidiaries are
owned of record and beneficially by the Company, free and clear of any Lien or
Encumbrance (other
5.
<PAGE>
than restrictions on transferability expressly set forth in applicable Federal
and state securities laws). Neither the Company nor any Subsidiary thereof
directly or indirectly owns, controls or holds the right to acquire any interest
in any other Person or is a participant in any joint venture, partnership or
similar arrangement.
2.8 BOOKS AND RECORDS.
(a) The Company has heretofore delivered to each of the
Investors true and complete copies of the articles of incorporation, including
all amendments thereto, and by-laws, as currently in effect, and all other
charter or organizational documents, of the Company and each of its
Subsidiaries. The Company has heretofore made available to each of the
Investors true and complete copies of the minute books of the Company and each
of its Subsidiaries. The minute books of the Company and its Subsidiaries
accurately reflect all material corporate actions taken at meetings, or by
written consent in lieu of meetings of the shareholders, boards of directors and
all committees of such boards of directors of the Company and its Subsidiaries,
respectively, since their incorporation. All material corporation actions taken
by the Company and its Subsidiaries have been duly authorized, and no such
corporate actions have been taken in breach or violation of the certificate or
articles of incorporation, by-laws or other charter or organizational documents
of the Company or any such subsidiary. The stock ledger of the Company is
complete and reflects all issuances, transfers, repurchases and cancellations of
shares of capital stock of the Company.
(b) The Company maintains a standard system of accounting
established and administered in accordance with U.S. generally accepted
accounting principles ("GAAP"). The books of account, order books, records and
documents of the Company accurately and completely reflect all material
information relating to the business dealings and affairs of the Company, the
nature, acquisition, maintenance, location and collection of its assets, and the
nature of all transactions giving rise to the obligations or accounts
receivables of the Company.
2.9 FINANCIAL STATEMENTS.
(a) The Company has delivered to each of the Investors a
true and complete copy of (a) the audited consolidated balance sheets of the
Company and its Subsidiaries at December 3 l, 1995 and 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows of the Company and its Subsidiaries for the periods then ended, including
in each case the related notes and auditor's report thereon, and (b) the
unaudited consolidated balance sheet of the Company at June 30, 1997, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and its Subsidiaries for the year-to-date period then
ended (collectively, the "Financial Statements"). The Financial Statements were
prepared in accordance with GAAP applied throughout the periods involved, were
prepared in accordance with the books and records of the Company and its
Subsidiaries (which, in turn, are accurate and complete in all material
respects), have been audited by an independent public accountant, and present
fairly the consolidated financial condition of the Company and its Subsidiaries
at the respective dates thereof and the results of operations and cash flows of
the Company and its Subsidiaries for the respective periods then ended (except
that the 1997 interim Financial Statements have not been audited and do not
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contain full footnote disclosures in accordance with GAAP and are subject to
normal and recurring year-end adjustments).
(b) Section 2.9 of the Disclosure Schedule contains a true
and complete copy of the financial projections furnished to the Investors by the
Company in connection with the transactions contemplated hereby. Such
projections were prepared in good faith by the Company, and the Company has no
reason to believe such projections or any assumptions upon which they are based
are not reasonable.
2.10 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor
any of its Subsidiaries has any direct or indirect, debt, obligation, loss,
damages, deficiency or other liability of any nature (of a type required by GAAP
to be reflected in financial statements), whether absolute, accrued, contingent
or otherwise (each, a "Liability"), other than (a) Liabilities accurately set
forth in the most recent Financial Statements, and (b) Liabilities (other than
Liabilities resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) incurred by the Company and its Subsidiaries in
the ordinary course of business after June 30, 1997 which, individually and in
the aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect.
2.11 ABSENCE OF CHANGES. Since June 30, 1997 (a) there has not been
any material adverse change in the business, operations, assets, Properties,
liabilities, condition (financial or otherwise), results of operations, licenses
or prospects of the Company and its Subsidiaries, taken as a whole, and (b)
there has not been:
(i) any damage, destruction or loss, whether or not
covered by insurance, which has had or could reasonably be expected to have a
Material Adverse Effect;
(ii) any waiver by the Company or any of its Subsidiaries
of a right of material value or of a material debt owed to it;
(iii) any satisfaction or discharge of any Lien or
Encumbrance or payment of any obligation by the Company or any of its
Subsidiaries, except m the ordinary course of business and which is not material
m the business, operations, assets, Properties, liabilities, condition
(financial or otherwise), results of operations, licenses or prospects of the
Company and its Subsidiaries, taken as a whole;
(iv) any sale, assignment or transfer by the Company or
any of its Subsidiaries of any patents, trademarks, copyrights, trade secrets or
other intangible assets or Properties;
(v) any sale, assignment or transfer by the Company or
any of its Subsidiaries of any tangible assets or Properties other than in the
ordinary course of business;
(vi) any resignation or termination of employment of any
officer of the Company or any of its Subsidiaries or, to the best of the
Company's knowledge after due inquiry, any impending or planned resignation or
termination of employment of any such officer;
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(vii) any mortgage, pledge, transfer of a security interest
in, or other Lien or Encumbrance, created by the Company or any of its
Subsidiaries, with respect to any of their material Properties or assets, except
Liens or Encumbrances for taxes not yet due or payable and Liens or Encumbrances
under equipment leases entered into in the ordinary course of business;
(viii) any capital expenditures or commitments therefor by
the Company or any of its Subsidiaries that aggregate in excess of $100,000;
(ix) any loans or guarantees made by the Company or any of
its Subsidiaries to or for the benefit of its employees, officers, directors or
consultants, or any members of their immediate families, other than travel
advances and other advances made in the ordinary course of its business;
(x) any declaration, setting aside or payment or other
distribution in respect of any of the capital stock or other equity securities
of the Company or any of its Subsidiaries, or any direct or indirect redemption,
purchase or other acquisition of any of such stock or equity securities by the
Company or any of its Subsidiaries;
(xi) any material change in any compensation arrangement
or agreement with any key employee of the Company or any of its Subsidiaries;
(xii) to the best of the Company's knowledge, any other
event or condition of any character which might materially and adversely affect
the business, operations, assets, Properties, liabilities, condition (financial
or otherwise), results of operations, licenses or prospects of the Company or
any of its Subsidiaries (as such business is presently conducted and as it is
currently proposed to be conducted); or
(xiii) any agreement or commitment by the Company or any of
its Subsidiaries to do any of the foregoing.
2.12 LITIGATION. There is no action, suit, claim, proceeding or
investigation pending or, to the best of the Company's knowledge, threatened
against the Company which questions the validity of this Agreement or any other
Transaction Document, or the right of the Company to enter into any of them, or
to consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any Material Adverse Effect.
The foregoing includes, without limitation, actions pending or, to the best of
the Company's knowledge, threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees or consultants,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. To the best of its
knowledge, the Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or Governmental Entity. There
is no action, suit, claim, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
2.13 COMPLIANCE WITH LAWS AND INSTRUMENTS. Each of the Company and
its Subsidiaries is in compliance with (a) the terms of its articles of
incorporation, by-laws or other
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charter or organizational documents, (b) all Contracts to which the Company or
any of its Subsidiaries is a party or by or to which any of them or their assets
or Properties may be bound or subject, (c) all applicable laws, statutes,
ordinances, rules, regulations or other legal requirements, whether federal,
state, local or foreign, and (d) all applicable orders, writs, judgments,
injunctions, awards and decrees (of which the Company is aware) of any court,
other Governmental Entity or arbitrator except, in the case of (b) and (c),
where such failures to comply would not have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries has received any written or, to the best
of the Company's knowledge, after due inquiry, oral notice of any violation by
the Company or any such Subsidiary of, or default by the Company or any of its
Subsidiaries under, any of the items described in clauses (a) through (d) above
in this paragraph.
2.14 PERMITS. Each of the Company and its Subsidiaries 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
reasonably be expected to have a Material Adverse Effect and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as currently 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.
2.15 TITLE TO PROPERTY AND ASSETS. Each of the Company and its
Subsidiaries has good and marketable title to, or a valid leasehold interest in,
all assets and Properties owned or used by it or reflected in the most recent
balance sheet included in the Financial Statements or acquired after the date of
such balance sheet, in each case free and clear of any Lien or Encumbrance,
except for (a) assets and Properties disposed of in the ordinary course of
business consistent with past practice since the date of such balance sheet, and
(b) Liens or Encumbrances arising in the ordinary course of business which do
not materially impair the Company's ownership or use of such assets or
Properties. With respect to the assets and Properties it leases, the Company is
in compliance with such leases and, to the best of its knowledge after due
inquiry, holds a valid leasehold interest free of any Lien or Encumbrance,
claims or encumbrances. The buildings, equipment and other tangible assets and
Properties owned or used by the Company and its Subsidiaries are sufficient to
conduct the business and operations of such entities as currently conducted and
are in good operating condition and repair (except for normal wear and tear).
2.16 INTELLECTUAL PROPERTY.
(a) Section 2.16 of the Disclosure Schedule contains a
complete and accurate list of all (i) patented or registered Intellectual
Property Rights owned or used by the Company or any of its Subsidiaries, (ii)
pending patent applications and applications for registrations of other
Intellectual Property Rights filed by the Company or any of its Subsidiaries,
(iii) material unregistered trade names and corporate names owned or used by the
Company or any of its Subsidiaries and (iv) material unregistered trademarks,
service marks, copyrights, mask works and computer software owned or used by the
Company or any Subsidiary. Section 2.16 of the Disclosure Schedule also
contains a complete and accurate list of all licenses and other rights granted
by the Company or any such Subsidiary to any third party with respect to any
Intellectual Property Rights and all licenses and other rights granted by any
third party to the Company or any such Subsidiary with respect to any
Intellectual Property
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Rights, in each case identifying the subject Intellectual Property Rights. Each
of the Company and its Subsidiaries owns all right, title and interest to, or
has the right to use pursuant to a valid license, all Intellectual Property
Rights material to the operation of the businesses of the Company and its
Subsidiaries as presently conducted and (to the best of the Company's knowledge)
as presently proposed to be conducted, free and clear of all Lien or
Encumbrance. Except to the extent set forth in the Disclosure Schedule, the
loss or expiration of any Intellectual Property Right or related group of
Intellectual Property Rights owned or used by the Company or any Subsidiary
thereof has not had and is not reasonably likely to have a Material Adverse
Effect, and no such loss or expiration is, to the best of the Company's
knowledge, threatened, pending or reasonably foreseeable. The Company and its
Subsidiaries have taken all actions reasonably necessary to maintain and protect
the Intellectual Property Rights which they own. To the best of the Company's
knowledge, the owners of any Intellectual Property Rights licensed to the
Company or any of its Subsidiaries have taken all material actions reasonably
necessary to maintain and protect the Intellectual Property Rights which are
subject to such licenses.
(b) Except to the extent set forth in the Disclosure
Schedule, (i) the Company and its Subsidiaries own all right, title and interest
in and to all of the Intellectual Property Rights listed or required to he
listed on Section 2.16 of the Disclosure Schedule, free and clear of all Liens
or Encumbrances, (ii) neither the Company nor any such Subsidiary has received
any notices of, any infringement or misappropriation by, or conflict with, any
third party with respect to such Intellectual Property Rights (including,
without limitation, any demand or request that the Company or any such
Subsidiary license any rights from a third party) nor is there valid grounds for
any such infringement, misappropriation or conflict, (iii) the conduct of the
Company's and each such Subsidiary's business has not infringed, misappropriated
or conflicted with and does not infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, and (iv) to the best of the
Company's knowledge, the Intellectual Property Rights owned by or licensed to
the Company or any of its Subsidiaries have not been infringed, misappropriated
or conflicted by other Persons. The transactions contemplated by this Agreement
shall have no material adverse effect on the Company's or any Subsidiary's
right, title and interest in and to the Intellectual Property Rights listed or
required to be listed on Section 2.16 of the Disclosure Schedule.
2.17 PROPRIETARY INFORMATION AGREEMENT. Each officer and employee
of the Company and its Subsidiaries has executed a proprietary information and
inventions agreement that provides for the confidential treatment of the
Intellectual Property Rights of the Company and its Subsidiaries and the
assignment to the Company of inventions developed in connection with the
performance of services for the Company or any of its Subsidiaries, in the form
previously furnished to the Investors.
2.18 CONTRACTS AND COMMITMENTS.
(a) Section 2.18 of the Disclosure Schedule contains a true and
complete list of all of the following Contracts to which the Company or any of
its Subsidiaries is a party or by or to which any of them or their assets or
Properties are or may be bound or subject, as each such Contract may have been
amended, modified or supplemented:
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(i) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or arrangement, or
any collective bargaining agreement or any other Contract with any labor union,
or severance agreements, programs, policies or arrangements;
(ii) Contracts for the employment of any officer,
individual employee or other Person on a full-time, part-time, consulting or
other basis providing annual compensation in excess of $100,000 (or providing
for the payment of any cash or other compensation upon a change in control of
the Company) or contract relating to loans to officers, directors or Affiliates;
(iii) Contracts under which the Company or any Subsidiary
thereof has advanced or loaned any other Person mounts in the aggregate
exceeding $50,000;
(iv) Contracts relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing of a Lien or
Encumbrance on any asset or properties or group of assets or Properties of the
Company or its Subsidiaries or any letter of credit arrangements;
(v) guarantees of any obligation in excess of $25,000;
(vi) Contracts under which the Company or any of its
Subsidiaries is lessee of or holds or operates any Property, real or personal,
owned by any other party except for any lease of real or personal Property under
which the aggregate annual rental payments do not exceed $25,000;
(vii) Contracts under which the Company or any of its
Subsidiaries is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Company or any
Subsidiary;
(viii) Contracts or group of related Contracts with the
same party or group of affiliated parties the performance of which involves
consideration in excess of $50,000;
(ix) assignments, licenses, indemnifications or
agreements with respect to any intangible property (including, without
limitation, any Intellectual Property Rights) other than Contracts for the sale
of products in the ordinary course of business and "off-the-shelf" software
available to the public generally;
(x) warranty Contracts with respect to its products
sold, leased or licensed or its services rendered which contains terms and
conditions that differ in any material respect from the Company's standard
warranty terms and conditions (a true and complete copy of which standard terms
and conditions has heretofore been furnished to each of the Investors);
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(xi) Contracts (other than the Investor Rights Agreement)
under which the Company or any of its Subsidiaries has granted any Person any
registration rights (including, without limitation, demand or piggyback
registration rights);
(xii) sales, distribution, dealer or franchise Contracts;
(xiii) Contracts prohibiting any Person from freely
engaging in any business or competing anywhere in the world; and
(xiv) any other agreement which is material to the
business, operations, assets, Properties, liabilities, condition (financial or
otherwise), results of operations, licenses or prospects of the Company or its
Subsidiaries or which involves consideration in excess of $50,000 annually.
(b) The Company has heretofore delivered or made available to
each of the Investors true and complete copies of all of the Contracts listed or
required to be listed in Section 2.18 of the Disclosure Schedule. To the best
of the Company's knowledge, each such Contract listed or required to be listed
in Section 2.18 of the Disclosure Schedule is valid, binding and enforceable in
accordance with its respective terms, and is in full force and effect. The
Company and each of its Subsidiaries have performed all material obligations
required to be performed by them under each such Contract, and to the best of
the Company's knowledge, none of them is in default under or in breach of nor in
receipt of any claim of default or breach under any such Contract. No event has
occurred which with the passage of time or the giving of notice or both would
result in a default, breach or event of noncompliance by the Company or any such
Subsidiary under any such Contract. Neither the Company nor any of its
Subsidiaries has any present expectation or intention of not fully performing
all such obligations, and the Company has no knowledge of any breach or
anticipated breach by the other parties to any such Contract. To the best of
the Company's knowledge, neither the Company nor any of its Subsidiaries is a
party to any Contract or commitment requiring it to purchase or sell goods or
services or lease property above or below (as the case may be) prevailing market
prices and rates.
2.19 EMPLOYEES. To the best of the Company's knowledge, the Company
and each of its Subsidiaries have complied in all material respects with all
laws relating to the employment of labor (including, without limitation,
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes). Neither the
Company nor any of its Subsidiaries is bound by or subject to (and none of their
respective assets or Properties are bound by or subject to) any Contract with
any labor union, and no labor union has requested or, to the best of the
Company's knowledge, sought to represent any of the employees, representatives
or agents of the Company or any of its Subsidiaries. There is no strike or
other labor dispute involving the Company pending, or to the best of the
Company's knowledge, threatened, and the Company is not aware that it or any
such Subsidiary has any other material labor relations problems (including,
without limitation, any labor organization activities, work stoppages or
material grievances). The Company has not received any notice that any officer
intends to terminate their employment with the Company or any of its
Subsidiaries, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company and its Subsidiaries is terminable at the will of the Company or
such respective Subsidiary. Neither the
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Company, its Subsidiaries nor, to the best of the Company's knowledge after due
inquiry, any of their employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of the
Company and its Subsidiaries.
2.20 ERISA.
(a) Except as set forth in Section 2.20 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries maintains, contributes
to or has any actual or potential liability with respect to any (i) "defined
contribution plan" (as defined in Section 3(34) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (a "Savings Plan"), (ii)
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA) (a
"Welfare Plan") or (iii) nonqualified deferred compensation, incentive, bonus,
material fringe benefit, stock bonus or other material benefit arrangements
(collectively, together with Savings Plans and Welfare Plans, "Plans").
(b) Neither the Company nor any of its Subsidiaries
maintains, contributes to or (to the best of the Company's knowledge) has any
actual or potential liability with respect to any active or terminated, funded
or unfunded (i) multiemployer plan (as defined in Section 3(37) of ERISA),
(ii)defined benefit plan (as defined in Section 3(35) of ERISA) or (iii)plan or
arrangement to provide medical, health, life insurance or other welfare-type
benefits for current or future retired or terminated employees (except for
limited continued health benefit coverage required to be provided under Section
4980B of the Code (as defined below) or similar state law).
(c) The Company has provided to each of the Investors
accurate and complete copies of each of the Plans and any related trusts,
insurance contracts or other agreements, the United States Internal Revenue
Service (the "IRS") favorable determination letter issued with respect to each
Savings Plan, IRS Form 5500s (including all attachments) for each Savings Plan
and each Welfare Plan for the most recently completed plan year and the most
recent financial statement with respect to each Savings Plan.
(d) To the best of the Company's knowledge, each Welfare
Plan and Savings Plan and all related funding arrangements comply in form and
operation with its terms and the applicable requirements of ERISA, the Code and
any other laws. To the best of the Company's knowledge, each Savings Plan has
received a favorable determination letter that it qualifies under the Code (and
that its trust is exempt from tax under the Code) and such favorable letter
includes changes required by the 1986 Tax Reform Act. To the best of the
Company's knowledge, nothing has occurred since the date of such favorable
determination letter that could adversely affect the qualified status of any
Savings Plan or the tax-exempt status of the trust.
(e) To the best of the Company's knowledge, none of the
Company, any Subsidiary thereof, any trustee or administrator of any Plan or
other Person has engaged in any transaction with respect to any Plan which could
subject the Company, any such Subsidiary or any of their respective employees to
any tax or penalty or other liability imposed by ERISA or the Code. Each of the
Company and its Subsidiaries has complied with the requirements of
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Section 4980B of the Code and Section 601 et. seq. of ERISA ("COBRA"). All
contributions which are due under each of the Plans has been made and all other
contributions have been properly accrued. Each of the Company and its
Subsidiaries has complied with all reporting and disclosure obligations with
respect to the Welfare Plans and the Savings Plan.
2.21 RELATED PARTY TRANSACTIONS. No shareholder, officer, director
or employee of the Company or any of its Subsidiaries or member of his or her
immediate family, is indebted (in the case of employee, for borrowed money) to
the Company or any such Subsidiary, nor is the Company or any such Subsidiary
indebted (or committed to make loans or extend or guarantee credit) to any of
them. To the best of the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm, corporation or other Person
which is an Affiliate of the Company or any of its Subsidiaries or with which
the Company or any such Subsidiary has a business relationship, or any firm,
corporation or other Person that competes with the Company or any such
Subsidiary. To the best of the Company's knowledge, no such person is directly
or indirectly interested in any material contract with the Company or any such
Subsidiary or has any material interest in any material assets or Property used
by the Company or any such Subsidiary.
2.22 CUSTOMERS AND SUPPLIERS. To the best of the Company's
knowledge, no material supplier of the Company or any of its Subsidiaries has
indicated that it will stop, or materially decrease the rate of, supplying
materials, products or services to the Company or any such Subsidiary, and to
the best of the Company's knowledge, no material customer has indicated that it
will stop, or materially decrease the rate of, buying materials, products or
services from the Company or any such Subsidiary.
2.23 INSURANCE. The Company and its Subsidiaries have such
liability, property and casualty, directors and officers liability, and other
insurance policies and coverage as are generally carried by similarly situated
companies. The Company has furnished or made available to each of the Investors
true and complete copies of the foregoing insurance policies and Contracts. All
such insurance policies and Contracts are valid and binding in accordance with
their terms, and are in full force and effect. Neither the Company nor any of
its Subsidiaries is in default with respect to its obligations under any
insurance policy or Contract maintained by it, and neither the Company nor any
such Subsidiary has been denied insurance coverage thereunder. The Company and
its Subsidiaries do not have any self-insurance, coinsurance or similar risk
retention programs.
2.24 REAL PROPERTY HOLDING CORPORATION STATUS. None of the Company
or any of its Subsidiaries has ever been a "United States real property holding
corporation," as defined in Section 897(c)(2) of the Code or in Section
1.897-2(b) of the Treasury Regulations issued thereunder. The Company has no
current plans or intentions which would cause the Company to become a "United
States real property holding company," and the Company has filed with the IRS
all statements, if any, with its United States income tax returns which are
required under Section 1.897-2(h) of the Treasury Regulations.
2.25 ENVIRONMENTAL AND SAFETY LAWS. The Company has complied with
all material Environmental and Safety Requirements, and the Company has not
received any notice and is not aware of any violations which would require
material expenditures in order to comply
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with any such existing Environmental and Safety Requirement. For purposes
hereof, "Environmental and Safety Requirements" means any federal, state, local
or foreign statute, law, rule, regulation, ordinance or other provision having
the force or effect of law, any judicial or administrative order or
determination, or common law, in each case concerning public health and safety,
worker health and safety and pollution or protection of the environment
(including without limitation, all those relating, to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
2.26 TAXES.
(a) All Tax Returns (as defined below) relating to, or
including items attributable to the operations of, the Company or relating to
any Tax (as defined below) for which the Company may be liable that were
required to be filed with any Taxing Authority (as defined below) with respect
to any Taxable period ending on or before the Closing have been or will be filed
when due (including any extensions of such due date). All such Tax Returns are
or will be complete, true and correct in all respects. All amounts of Taxes
owed by the Company with respect to periods through the Closing have either been
paid or fully accrued on the Financial Statements. Subject to immaterial
year-end accounting changes, the accruals and reserves for Taxes set forth in
the Financial Statements are sufficient to pay all unpaid Taxes of the Company
attributable (on an accrual basis) to all periods ended on or before the
Closing. All Taxes that the Company is or was required by law to withhold or
collect (or any such Taxes for which the Company may be liable) have been duly
withheld or collected and, to the extent required, have been paid to the proper
Taxing Authority. All Taxes withheld or collected by the Company but not yet
required to be paid to the proper Taxing Authority have been set aside in
accounts for later payment to the proper Taxing Authority or accrued, reserved
against and entered upon the books of the Company, subject to immaterial
year-end accounting changes. For purposes of this Agreement, the following
terms have the following meanings: "Tax" (and, with correlative meaning, "Taxes"
and "Taxable") means any and all taxes including, without limitation, (i) any
net 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, value added, net worth,
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 any governmental entity (a "Taxing Authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period or as a result of being a transferee or successor
thereof and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied obligation to
indemnify any other person and "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
Taxing authority in connection with Taxes.
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(b) 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. 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 a Tax Authority.
(c) The Company is not a "consenting corporation" within the
meaning of Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "Code"), and none of the assets of the Company are subject to an
election under Section 341(f) of the Code. The Company has not elected to be
treated as a Subchapter S corporation pursuant to Section 1362(a) of the
Code. The Company is not a party to any Tax allocation or sharing agreement.
2.27 EXEMPTION FROM REGISTRATION. Assuming the accuracy of each
Investor's representations and warranties contained in Section 3, the offer and
sale of the Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and any issuance and delivery
of Conversion Shares or issuance and sale of Warrant Shares to the Investors (or
an Affiliate or Affiliates thereof) will be exempt from the registration
requirements of the Securities Act. Neither the Company nor any Person acting
on its behalf has, in connection with the offering of the Securities, the
Conversion Shares or the Warrant Shares, engaged in (a) any form of general
solicitation or general advertising (as those terms are used within the meaning
of Rule 502(c) under the Securities Act), (b) any action involving a public
offering within the meaning of Section 4(2) of the Securities Act, (c) any
action which would require the registration of the offering and sale of the
Securities (or any issuance or delivery of the Conversion Shares or the Warrant
Shares) under the Securities Act, except as provided in the Investor Rights
Agreement, or (d) any action which would violate any state securities or "blue
sky" laws. The Company has not made and will not make, directly or indirectly,
any offer or sale of capital stock or other equity or debt security if, as a
result, the offer and sale of the Securities contemplated hereby would fail to
be entitled to exemption from file registration requirements of the Securities
Act. As used herein, the terms "offer" and "sale" have the respective meanings
specified in Section 2(3) of the Securities Act.
2.28 USE OF PROCEEDS. The Company covenants, represents and
warrants that the proceeds from the sale of the Securities hereunder will be
used by the Company solely as working capital for the Company.
2.29 BROKER FEES. No broker, finder or investment banker has been
retained or engaged on behalf of the Company or any of its Subsidiaries or is
entitled to any brokerage, finder's or other fee, compensation or commission in
connection with the transactions contemplated by this Agreement. The Company
shall pay, and hold each Investor harmless against, any liability, loss or
expense (including, without limitation, attorneys' fees and out-of-pocket
expenses) arising in connection with any claim therefor.
2.30 DISCLOSURE. The Company has fully provided each of the
Investors with all of the information and documents that the Investors and their
representatives have requested in connection with the transactions contemplated
hereby and all information and documents that the Company believes are
reasonably material to each Investor's investment decision and to the business,
operations, assets, Properties, liabilities, condition (financial or otherwise),
results of
16.
<PAGE>
operations, licenses or prospects of the Company and its Subsidiaries, taken as
a whole. No representation or warranty made by the Company in this Agreement
(including the Disclosure Schedule) or any other Transaction Document, and none
of the exhibits, schedules, attachments, written statements, documents,
certificates or other items prepared and supplied to any Investor by or on
behalf of the Company in connection with the transactions contemplated hereby,
contains or, as applicable, will contain any untrue statement of a material fact
required to be stated therein, or omits or, as applicable, will omit a material
fact necessary to make each statement contained herein or therein, in light of
the circumstances under which they are made, not misleading.
3. INVESTMENT REPRESENTATION OF THE INVESTORS. Each Investor hereby
represents and warrants to the Company that: (a) it has full power and authority
to enter into this Agreement and each other Transaction Document to which it is
a party, and each of this Agreement and each such other Transaction Document
constitutes its valid and legally binding obligation, enforceable against such
Investor in accordance with its terms; (b) it (or its nominee) is acquiring the
Securities pursuant to this Agreement for its own account without a view to a
distribution or resale thereof, it being understood that nothing contained
herein shall prevent the Investor (or its nominee) or any subsequent holders of
Securities from transferring any such Securities pursuant to an effective
registration statement or an exemption therefrom under the Securities Act; (c)
such Investor believes it has received all the information it considers
necessary or appropriate for deciding whether to acquire the Securities, it
being understood that nothing contained herein shall limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of any Investor to rely thereon; (d) it has substantial experience in
evaluating and investing in private placement transactions so that it is capable
of evaluating the merits and risks of its investment in the Company; and (e) it
is familiar with Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and otherwise by
the Securities Act.
4. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT THE CLOSING. The several
obligations of each Investor to purchase Securities at the Closing shall be
subject to the satisfaction of the following conditions at or prior to the
Closing:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Agreement shall be true and correct as of the
Closing with the same force and effect as though made as of the Closing.
4.2 COVENANTS. The Company shall have performed and complied with
all covenants and agreements required to be performed or complied with by the
Company hereunder at or prior to the Closing or the Closing Date.
4.3 PROCEEDINGS. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Investors and their counsel.
4.4 CONSENTS AND APPROVALS. All consents, approvals,
authorizations, licenses or orders of, registrations, qualifications,
designations, declarations or filings with, or
17.
<PAGE>
notice to any Governmental Entity or any other Person necessary to be obtained,
made or given in connection with the transactions contemplated hereby shall have
been duly obtained, made or given and shall be in full force and effect, without
the imposition upon any Investor, the Company or any Subsidiary thereof of any
condition, restriction or required undertaking.
4.5 RESTATED ARTICLES. The Restated Articles shall have been filed
with the Secretary of State of the State of California, and shall be in full
force and effect under the laws of the State of California as of the Closing and
shall not have been further amended or modified.
4.6 BYLAWS. The Company's bylaws shall, or shall have been duly
amended to, (a) provide that the size of the Board of Directors of the Company
shall consist of not more than seven members, and (b) be otherwise consistent
with the terms of the Restated Articles.
4.7 BOARD OF DIRECTORS. At least two persons designated by a
majority in interest of the Investors shall have been duly elected or appointed
as members of the Board of Directors of the Company (which shall consist of no
more than seven members), and at least one such person selected by a majority in
interest of the Investors shall have been duly appointed as a member of each
committee of such Board of Directors, in each case effective at or prior to the
Closing. Upon the Closing, the Compensation Committee of the Board of Directors
of the Company shall consist of two members, including one member who is an
officer of the Company and one member selected by a majority in interest of the
Investors.
4.8 INVESTOR RIGHTS AGREEMENT. The Company and each of its
securityholders, and each holder of securities convertible into or exchangeable
or exercisable for any securities of the Company, shall have entered into an
investor rights agreement, substantially in the form of Exhibit D attached
hereto (the "Investor Rights Agreement"), with the Investors, and the Investor
Rights Agreement shall be in full force and effect as of the Closing.
4.9 RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Company and
each of its securityholders, and each holder of securities convertible into or
exchangeable or exercisable for any securities of the Company, shall have
entered into a right of first refusal and co-sale agreement, substantially in
the form of Exhibit E attached hereto (the "Co-Sale Agreement"), with the
Investors, and the Co-Sale Agreement shall be in full force and effect at the
Closing.
4.10 INDEMNIFICATION AGREEMENT. The Company shall have entered into
an indemnification agreement, substantially in the form of Exhibit F attached
hereto (the "Indemnification Agreement"), with the director designees of the
Investors referred to in Section 4.7. The Indemnification Agreement shall be in
full force and effect at the Closing.
4.11 STOCK PURCHASE. The Stock Purchase Agreement shall be in full
force and effect in accordance with its terms, and the transactions contemplated
by the Stock Purchase Agreement shall have been consummated.
4.12 SECURITIES LAW COMPLIANCE. The Company shall have made all
filings under all applicable federal and state securities laws necessary to
consummate the issuance and sale of the Securities pursuant to this Agreement in
compliance with such laws other than post-Closing notice filings not involving
any consent or approval.
18.
<PAGE>
4.13 OPINION OF COUNSEL. Each Investor shall have received an
opinion of Cooley Godward LLP, counsel for the Company, dated the Closing Date
and addressed to the Investors, with respect to the matters set forth in Exhibit
G attached hereto and otherwise in form and substance reasonably satisfactory to
the Investors and their counsel.
4.14 CLOSING DOCUMENTS. The Company shall have delivered to each
Investor (a) a certificate dated the Closing Date, signed by the Chief Executive
Officer of the Company, certifying as to the fulfillment of the conditions set
forth in Sections 4.1, 4.2, 4.4, 4.6, 4.7, 4.12 and 4.15, (b) certified copies
of the certificate of incorporation and bylaws, as amended through the Closing
Date, of the Company and each of its Subsidiaries, (c) copies of the resolutions
adopted by its Board of Directors, any Committees thereof, and its shareholders,
certified as of the Closing Date by the corporate secretary of the Company,
authorizing and approving this Agreement and the Transaction Documents to which
the Company is a party, the filing of the Restated Articles, the issuance and
sale of the Securities, and all other transactions contemplated hereby and by
the Transaction Documents to which the Company is a party, (d) copies of the
items referred to in Section 4.4, if any, and (e) such other certificates and
documents relating to the transactions contemplated by this Agreement as any
Investor or its counsel may reasonably request.
4.15 NO INJUNCTION OR ILLEGALITY. No injunction, order, decree or
judgment shall have been issued by any court or other Governmental Entity and be
in effect, and no statute, rule or regulation shall have been enacted or
promulgated by any Governmental Entity and be in effect, which in each case
restrains or prohibits any of the transactions contemplated hereby.
4.16 EXPENSES. The Company shall have reimbursed the Investors for
the fees and expenses of their counsel as provided herein.
5. DEFINITIONS.
5.1 DEFINITIONS. For the purposes of this Agreement, the following
terms shall have the respective meanings set forth below:
"AFFILIATE" of any Person means any other Person that directly
or indirectly through one or more intermediaries controls, is controlled by or
under common control with such Person. For purposes of this definition and the
definition of "Subsidiary" below, "control" (or "controlled", as the context may
require) shall have the meanings set forth in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended.
"CODE" means the Internal Revenue Code of 1986, as amended, and
any reference to any particular Code section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"CONTRACT" means all written or oral contracts, agreements,
undertakings, indentures, notes, debentures, bonds, loans, instruments, leases,
mortgages, commitments or other binding arrangements.
"GOVERNMENTAL ENTITY" means any federal, state, local or
foreign government, political subdivision, legislature, court, agency,
department, bureau, commission or
19.
<PAGE>
other governmental or regulatory authority, body or instrumentality, including
any industry or other non-governmental self-regulatory organizations
"INDEBTEDNESS" means at a particular time, without duplication,
(i) any indebtedness for borrowed money or issued in substitution for or
exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by
any note, bond, debenture or other debt security, (iii) any indebtedness for the
deferred purchase price of property or services with respect to which a Person
is liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of
business which are not more than six months past due), (iv) any commitment by
which a Person assures a creditor against loss (including, without limitation,
contingent reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"INTELLECTUAL PROPERTY RIGHTS" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registrations
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation thereof, (vi)
trade secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"LIEN OR ENCUMBRANCE" means any lien, pledge, mortgage,
security interest, claim, lease, charge, option, right, easement, servitude,
transfer limit, restriction, title defect or other encumbrance of any kind
(including, without limitation, any conditional sale or other title retention
agreement or lease in the nature thereof, any sale of receivables with recourse
against the Company or any Affiliate thereof, any filing or agreement to file a
financing statement as debtor under the Uniform Commercial Code or any similar
statute, or any subordination arrangement in favor of another Person).
"PERSON" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint stock
company, trust, unincorporated organization, Governmental Entity, or other
entity or organization.
"PROPERTY" means any real, personal or mixed property, whether
tangible or intangible.
20.
<PAGE>
"SUBSIDIARY" means, with respect to any Person, any entity
controlled (as such term is defined in the definition of "Affiliate" above) by
such Person.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement, any other
Transaction Document to which it is a party or any exhibits, schedules,
attachments, written statements, documents, certificates or other items prepared
and supplied to the Investors by or on behalf of the Company in connection with
the transactions contemplated hereby shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by or on behalf of any Investor.
6.2 NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid), mailed to the recipient by certified or registered mail,
return, receipt requested and postage prepaid, or transmitted by facsimile (with
request for immediate confirmation of receipt in a manner customary for
communications of such type and with physical delivery of the communication
being made by one of' the other means specified in this Section as promptly as
practicable thereafter). Such notices, demands and other communications shall
be addressed as follows:
If to the Company:
Clontech Laboratories, Inc.
1020 East Meadow Circle
Palo Alto, California 94303
Attention: President
Telephone: (650) 424-8222
Telecopy: (650) 424-8419
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306-2155
Attention: Brian Cunningham, Esq.
Telephone: (650) 843-5000
Telecopy: (650) 857-0663
21.
<PAGE>
If to any Investor:
Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, California 94301
Attention: Gregory M. Avis
Mark G. Hilderbrand
Telephone: (650) 321-1166
Telecopy: (650) 321-1188
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303-0913
Attention: Thomas A. Bevilacqua, Esq.
Telephone: (650) 424-0160
Telecopy: (650) 496-2885
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party
(provided that notice of a change of address shall be effective only upon
receipt thereof).
6.3 EXPENSES. The Company shall pay, and hold the Investor and all
holders of Securities (including Warrant Shares and any securities issued with
respect to any Securities or Warrant Shares) harmless from and against liability
for the payment of, (a) the reasonable fees (in an amount not to exceed $60,000)
and expenses of Brobeck, Phleger & Harrison LLP, counsel to the Investor,
arising in connection with the negotiation and execution of this Agreement and
the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby (which fees and expenses shall be payable at or
prior to the Closing), (b) the reasonable fees and expenses incurred with
respect to any amendments or waivers (whether or not the same become effective)
under or in respect of this Agreement or any other Transaction Document
(including without limitation, any amendment or modification of the Restated
Articles in connection with any proposed merger, consolidation, sale,
recapitalization or public offering of securities), (c) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or any other Transaction Document or the issuance, delivery or acquisition of
any Securities or Warrant Shares, (d) the reasonable fees and expenses incurred
by each such Person in any filing with any Governmental Entity with respect to
its investment in the Company or in any other filing with any Governmental
Entity with respect to the Company which mentions such Person. The Company
shall pay the reasonable fees and expenses incurred by the holders of Securities
or Warrant Shares for the enforcement of the rights granted under this Agreement
or any other Transaction Document if such holders are the prevailing party in
connection therewith.
22.
<PAGE>
6.4 REMEDIES. Each holder of Securities or Warrant Shares shall
have all rights and remedies set forth in this Agreement, the other Transaction
Documents to which the Company is a party and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The Company agrees to waive, in any
action, suit or proceeding for specific performance or other equitable relief,
the defense of adequacy of money damages or a remedy at law.
6.5 ENTIRE AGREEMENT; WAIVERS AND AMENDMENTS. This Agreement
(including the exhibits and schedules hereto and the documents and instruments
referred to herein) contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes all prior
written or oral agreements and understandings with respect thereto. This
Agreement may only be amended or modified, and the terms hereof may only be
waived, by a writing signed by both parties hereto or, in the case of a waiver,
by the party entitled to the benefit of the terms being waived.
6.6 ASSIGNMENT; BINDING EFFECT. This Agreement may not be assigned
or delegated, in whole or in part, by either party hereto without the prior
written consent of the other party hereto, except that (a) the Investor shall
have the right at any time, without such consent, to assign its right hereunder
to purchase any or all of the Securities to any Affiliate of the Investor and
(b) whether or not any express assignment has been made, the provisions of this
Agreement which are for the Investor's benefit are also for the benefit of, and
enforceable by, any subsequent holder of Securities or Warrant Shares. Subject
to the foregoing, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
6.7 SEVERABILITY. In the event that any provision of this
Agreement shall be declared invalid or unenforceable by a court of competent
jurisdiction in any jurisdiction, such provision shall, as to such jurisdiction,
be ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto.
6.8 NO THIRD PARTY BENEFICIARIES. This Agreement is for the
benefit of the parties hereto and is not intended to confer upon any other
Person any rights or remedies hereunder.
6.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without giving effect to the principles of conflicts of law thereof.
6.10 STRICT CONSTRUCTION. This Agreement is the result of
arms-length negotiations between the parties hereto and has been prepared
jointly by the parties. In applying and interpreting the provisions of this
Agreement, there shall be no presumption that the
23.
<PAGE>
Agreement was prepared by any one party or that the Agreement shall be construed
in favor of or against any one party.
6.11 INTERPRETATION. The parties intend that each representation,
warranty and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
6.12 CAPTIONS. The Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall not affect
the interpretation of this Agreement.
6.13 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and both of which together shall be
considered one and the same agreement.
24.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first written above.
CLONTECH LABORATORIES, INC.
By: /s/ Ken Fong
-------------------------------------
Kenneth Fong
President
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV
Its General Partner
By: /s/ Gregory M. Avis
-------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
-------------------------------------
General Partner
SUMMIT SUBORDINATED DEBT FUND II, L.P.
By: Summit Partners SD II, LLC
Its General Partner
By: /s/ Gregory M. Avis
-------------------------------------
General Partner
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
25.
<PAGE>
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Purchase Purchase Total
Price for Price for Purchase
Names Notes Warrants Price
- ---------------------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
Summit IV, L.P. $ 22,892.95 $ 22,892.95
Summit Sub Debt II, L.P. $ 5,828,437.00 1,392.20 5,829,829.20
Summit Investors III, L.P. 171,563.00 714.85 172,277.85
---------------- ------------- ----------------
TOTAL $ 6,000,000.00 $ 25,000.00 $ 6,025,000.00
---------------- ------------- ----------------
---------------- ------------- ----------------
</TABLE>
1.
<PAGE>
12% SUBORDINATED NOTE
Due September 9, 2004
U.S. $171,563.00 Dated: September 9, 1997
FOR VALUE RECEIVED, the undersigned, CLONTECH LABORATORIES, INC., a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO
PAY to the order of SUMMIT INVESTORS III, L.P., (the "Lender"), the principal
sum of One Hundred Seventy-one Thousand, Five Hundred and Sixty-three UNITED
STATES DOLLARS (U.S. $171,563), on September 9, 2004.
The Borrower further promises to pay interest on the outstanding
principal amount of this Promissory Note (this "Note") from time to time at a
rate per annum equal at all times to 12.00%. At the end of the first annual
accrual period, commencing on the date hereof, and each annual accrual period
thereafter, Borrower shall pay one-half of the accrued interest for that
period to the Lender and the remaining one-half of the accrued interest for
that period shall be added to, and shall thereafter be treated for all
purposes as part of the principal amount of this Note. In the event that any
amount of principal or interest, or any other amount payable hereunder, is
not paid in full when due (whether at stated maturity, by acceleration or
otherwise), the Borrower shall pay interest on such unpaid principal,
interest or other amount, from the date such amount becomes due until the
date such amount is paid in full, payable on demand, at a rate per annum
equal at all times to 14.00%, compounded annually. In the event that, at any
time or from time to time, the Borrower shall incur a net operating loss
greater than 2% of revenue for any two successive fiscal quarters or for any
fiscal year (as reflected in the consolidated financial statements of the
Borrower and its subsidiaries delivered hereunder), then in each such
instance the rate of interest on unpaid principal, interest or other amounts
hereunder shall thereupon be increased by 2.00% per annum until such time as
the Borrower shall have a net operating profit for a full fiscal quarter.
Interest shall compound annually and shall accrue daily on the outstanding
principal amount of this Note and shall be calculated on the basis of a year
of 365 or 366 days, as the case may be, for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest is payable.
All payments hereunder shall be made in lawful money of the United
States of America and in same day or immediately available funds, prior to
10:00 a.m. (Pacific time), to the Lender, at Boston Safe Deposit & Trust Co.,
One Boston Place, Boston, MA 02108, Account Number 05-942-0, ABA Routing
Number 0110-01234, or to such other office and account of the Lender as it
from time to time shall designate in a written notice to the Borrower.
Whenever any payment hereunder shall be stated to be due, or whenever
any interest payment date or any other date specified hereunder would
otherwise occur, on a day other than a Business Day (as defined below), then,
except as otherwise provided herein, such payment shall be made, and such
interest payment date or other date shall occur, on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of payment of interest hereunder. As used herein, "Business
Day" means a day (i) other than
1.
<PAGE>
Saturday or Sunday, and (ii) on which commercial banks are open for business
in New York, New York, and San Francisco, California.
All payments shall be made hereunder unconditionally in full without
deduction, setoff, counterclaim or other defense. The Borrower represents
and warrants to the Lender that, to the best of the Borrower's knowledge,
there is no claim, defense, counterclaim or set-off which could be asserted
by or is available to the Borrower against the Lender.
Anything herein to the contrary notwithstanding, if during any period
for which interest is computed hereunder, the amount of interest computed on
the basis provided for in this Note, together with all fees, charges and
other payments which are treated as interest under applicable law, as
provided for herein or in any other document executed in connection herewith,
would exceed the amount of such interest computed on the basis of the Highest
Lawful Rate (as defined below), the Borrower shall not be obligated to pay,
and the Lender shall not be entitled to charge, collect, receive, reserve or
take, interest in excess of the Highest Lawful Rate, and during any such
period the interest payable hereunder shall be computed on the basis of the
Highest Lawful Rate. As used herein, "Highest Lawful Rate" means the maximum
non-usurious rate of interest, as in effect from time to time, which may be
charged, contracted for, reserved, received or collected by the Lender in
connection with this Note under applicable law.
The Borrower may, upon at least five (5) Business Days prior written
notice to the Lender, prepay the outstanding amount hereof in whole or in
part, without premium or penalty. Partial prepayments shall be in an
aggregate principal amount of at least $500,000 or a greater amount which is
an integral multiple of $500,000.
Notwithstanding anything herein to the contrary, the Borrower must
prepay all outstanding amounts hereunder upon the occurrence of (i) the
acquisition of the Borrower by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of the Borrower), (ii) a
sale of all or substantially all of the assets of the Borrower, (iii) a
liquidation, dissolution or winding up of the Borrower, or (iv) the
Borrower's sale of its Common Stock in a bona fide firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended.
Together with any prepayment hereunder, the Borrower shall pay accrued
interest to the date of such prepayment on the principal amount prepaid.
By accepting this Note, the Lender agrees that all payments on account
of the indebtedness, liabilities and other obligations of the Borrower to the
Lender and each other holder from time to time of this Note, including,
without limitation, all amounts of principal, all interest accrued hereon,
and all other amounts payable by the Borrower to the Lender under this Note
or in connection herewith (the "Subordinated Indebtedness") shall be
sub-ordinate and subject in right of payment, to the extent and in the manner
set forth herein, to the prior payment in full in cash or cash equivalents of
the Senior Indebtedness. As used herein, "Senior Indebtedness" shall mean
any indebtedness, liabilities and other obligations of the Borrower (whether
as primary obligor or as guarantor) to any Person (each a "Senior Lender")
with respect
2.
<PAGE>
to any working capital, revolving credit or other line of credit facility,
any term loan facility, or any other extension of credit by a bank, insurance
company or financial institution engaged in the business of lending money
(whether or not secured), including reimbursement obligations under letters
of credit (or local guaranties, as applicable) and obligations in respect of
bankers' acceptances, interest rate protection agreements and currency
exchange and purchase agreements, and any other indebtedness or other
obligations of the Borrower (i) for borrowed money or evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses, (ii) under leases which are capitalized under U.S. generally
accepted accounting principles ("GAAP"), (iii) under leases for equipment
used in the ordinary course of the Borrower's business, and (iv) with respect
to indebtedness of others for the payment of which the Borrower is
responsible or liable as co-obligor or guarantor and any renewals,
refundings, refinancings or other extensions thereof, except for any of the
foregoing held by any Affiliate (as defined below) of the Borrower, and
except for indebtedness or other obligations which are specifically
designated not to be Senior Indebtedness for purposes of this Note in the
instruments evidencing such indebtedness or obligations at the time of the
issuance thereof or which by their terms are subordinated to any other
category or class of indebtedness of the Borrower. The terms "indebtedness,"
"liabilities" and "obligations" are used herein in their most comprehensive
sense and include any and all advances, debts, obligations and liabilities,
now existing or hereafter arising, whether voluntary or involuntary and
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined.
As long as any of the Senior Indebtedness shall remain outstanding and
unpaid, the Lender shall not accept or receive, directly or indirectly, and
the Borrower shall not make, any Subordinated Debt Payment (as defined
below), except that prior to the occurrence of any Senior Lender Default (as
defined below) and receipt of the notice from the Senior Lender described
below, the Lender shall be entitled to accept and receive payments of
principal and interest under this Note,-in accordance with the terms of this
Note. Upon the occurrence of any Senior Lender Default (or if any Senior
Lender Default would exist immediately after the making of a Subordinated
Debt Payment), and upon receipt by the Borrower and the Lender of notice in
writing of such Senior Lender Default, and until such Senior Lender Default
is cured or waived, the Borrower shall not make, and the Lender shall not
accept or receive, any Subordinated Debt Payment. In the event that,
notwithstanding the foregoing provisions, any Subordinated Debt Payments
shall be received in contravention hereof by the Lender before all Senior
Indebtedness shall be paid, such Subordinated Debt Payments shall be held in
trust for the benefit of the Senior Lenders and shall be paid over or
delivered to the Senior Lenders for application to the payment in full in
cash or cash equivalents of all Senior Indebtedness remaining unpaid to the
extent necessary to give effect hereto, after giving effect to any concurrent
payments or distributions to any Senior Lender in respect of the Senior
Indebtedness. As used herein, "Senior Lender Default" means any payment
default in respect of any Senior Indebtedness, or any other default specified
in the agreement or instrument under which any Senior Indebtedness is issued,
continuing beyond the grace period, if any, specified in any such agreement
or instrument; and "Subordinated Debt Payment" means any payment or
distribution by or on behalf of the Borrower, directly or indirectly, of
assets of the Borrower of any kind or character, whether in cash, property or
securities, including on account of the purchase, redemption or other
acquisition of Subordinated Indebtedness, or by setoff, exchange or in any
other manner, for or on account of the Subordinated Indebtedness.
3.
<PAGE>
If, while any Subordinated Indebtedness is outstanding, any bankruptcy,
insolvency, reorganization, receivership, arrangement, marshalling of assets
and liabilities or similar proceeding is commenced by or against the Borrower
or its property, (i) the Senior Lenders shall be irrevocably authorized and
empowered (in the name of the Senior Lenders or in the name of the Lender or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution in respect of the Subordinated
Indebtedness and give acquittance therefor and to file claims and proofs of
claim and take such other action (including voting the Subordinated
Indebtedness) as they may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of the Senior. Lenders, but
only if the Lender does not do so prior to the date 30 days before the
expiration of the time to file claims or take other action in any such
proceedings; and (ii) the Lender shall promptly take such action as any
Senior Lender may reasonably request (A) to collect the Subordinated
Indebtedness for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the Subordinated Indebtedness, (B)
to execute and deliver to the Senior Lenders, such powers of attorney,
assignments and other instruments as they may request to enable them to
enforce any and all claims with respect to the Subordinated Indebtedness (to
the extent and in the manner provided herein), and (C) to collect and receive
any and all payments or distributions which may be payable or deliverable
upon or with respect to the Subordinated Indebtedness.
In the event of any payment or distribution of assets of the Borrower of
any kind or character, whether in cash, property or securities, upon the
dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Borrower or
its property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for
the benefit of creditors, or upon any other marshalling or composition of the
assets and liabilities of the Borrower, or otherwise: (i) all mounts owing on
account of the Senior Indebtedness shall first be paid m full in cash, or
payment provided for in cash or in cash equivalents, before any Subordinated
Debt Payment is made; and (ii) to the extent permitted by applicable law, any
Subordinated Debt Payment to which the Lender would be entitled except for
the provisions hereof, shall be paid or delivered by the trustee in
bankruptcy, receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution directly to the Senior
Lenders for application to the payment of the Senior Indebtedness in
accordance with clause (i) above, after giving effect to any concurrent
payment or distribution or provision therefor to the Senior Lenders in
respect of such Senior Indebtedness.
The Lender shall not (i) accelerate any Subordinated Indebtedness, or
demand or attempt to collect or commence any legal proceedings to collect,
any Subordinated Debt Payment prior to the date such payment becomes due and
payable pursuant to the terms thereof or, if later, prior to the first date
such amount is not prohibited from being paid pursuant to this Note or
institute any other actions or proceedings to enforce its rights or interests
under or in respect of this Note; (ii) exercise any rights under or with
respect to (A) any guaranties of the Subordinated Indebtedness, or (B) any
collateral securing the Subordinated Indebtedness, including causing or
compelling the pledge or delivery of any collateral, any attachment of, levy
upon, execution against, foreclosure upon or the taking of other action
against or institution of other proceedings with respect to any collateral,
notifying any account debtors of the Borrower or asserting any claim or
interest in any insurance with respect to the collateral, or attempt to do
any of the foregoing; (iii) exercise any rights to set-offs and counterclaims
in respect of any indebtedness, liabilities or
4.
<PAGE>
obligations of the Lender to the Borrower against any of the Subordinated
Indebtedness; or (iv) commence or maintain any action, suit or any other
legal or equitable proceeding against the Borrower, or join with any creditor
in any such proceeding, under any insolvency, bankruptcy, receivership,
liquidation, reorganization or other similar law. Notwithstanding the
foregoing prohibitions, the Lender may take any action available to it under
applicable law and under this Note, including demand or acceleration of this
Note and commencement of or participation in any such proceeding, if any of
the Senior Indebtedness shall have been accelerated or demand made for
payment in full thereof, or any such proceeding shall have been commenced by
a Senior Lender or any other Person other than the Lender.
The subordination provisions of this Note are intended solely for the
purpose of defining the relative rights against the Borrower of the Lender,
on the one hand, and the Senior Lenders, on the other hand. Nothing
contained herein shall (i) impair, as between the Borrower and the Lender,
the obligation of the Borrower to pay the principal of or interest on this
Note and its other obligations with respect to the Subordinated Indebtedness
as and when the same shall become due and payable in accordance with the
terms thereof, or (ii) otherwise affect the relative rights against the
Borrower of the Lender, on the one hand, and the creditors of the Borrower
(other than the Senior Lenders), on the other hand.
Until the payment and performance m full of all Senior Indebtedness, the
Lender shall not have, and shall not directly or indirectly exercise, any
rights that it may acquire by way of subrogation under this Note, by any
payment or distribution to the Senior Lenders hereunder or otherwise. Upon
the payment and performance in full of all Senior Indebtedness, the Lender
shall be subrogated to the rights of the Senior Lenders to receive payments
or distributions applicable to the Senior Indebtedness until the Subordinated
Indebtedness shall be paid in full. For the purposes of the foregoing
subrogation, no payments or distributions to the Senior Lenders of any cash,
property or securities to which the Lender would be entitled except for the
provisions of this Note shall, as among the Borrower, its creditors (other
than the Senior Lenders and the Lender), be deemed to be a payment by the
Borrower to or on account of the Senior Indebtedness.
The Lender by its acceptance hereof agrees to execute and deliver to any
Senior Lender such subordination agreement as may be reasonably requested by
such Senior Lender and as may be consistent with the subordination provisions
contained herein, and to execute, acknowledge, deliver, file, notarize and
register all such further agreements, instruments, certificates, documents
and assurances, and perform such acts as such Senior Lender shall deem
necessary or appropriate to effectuate the purposes of the subordination
provisions contained herein.
The Lender shall not, without the prior written consent of the Senior
Lenders, agree to or permit any amendment, modification or waiver of any of
the subordination provisions of this Note (including any amendment,
modification or waiver pursuant to an exchange of other securities or
instruments for outstanding Subordinated Indebtedness).
5.
<PAGE>
So long as any amount payable by the Borrower hereunder shall remain
unpaid, the Borrower shall deliver to the Lender:
(a) as soon as available but in any event within 30 days after the
end of each month in each fiscal year, unaudited consolidating and
consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for such month and from the period from the beginning of the
fiscal year to the end of such month, and unaudited consolidating and
consolidated balance sheets of the Borrower and its Subsidiaries as of the
end of such month, setting forth in each case comparisons to the Borrower's
annual budget and to the corresponding period in the preceding fiscal year,
and all such statements shall be prepared in accordance with GAAP,
consistently applied, except that they may not contain full footnote
disclosures and may be subject to normal year-end adjustments for recurring
accruals, and shall be certified by the chief financial officer of the
Borrower;
(b) as soon as available, but in any event within 90 days after the
end of each fiscal year; consolidating and consolidated statements of income
and cash flows of the Borrower and its Subsidiaries for such fiscal year, and
consolidating and consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such fiscal year-setting forth in each case
comparisons to the Borrower's annual budget and to the preceding fiscal year,
all prepared in accordance with GAAP, consistently applied, and with respect
to the consolidated portions of such statements accompanied by an opinion
containing no exceptions or qualifications (except for qualifications
regarding specified contingent liabilities) of a "Big-Six" accounting firm
selected by the Board of Directors of the Borrower;,
(c) at least 30 days, but not more than 90 days, prior to the
beginning of each fiscal year, an annual budget and operating plan prepared
on a monthly basis for the Borrower and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows and balance
sheets), and promptly upon preparation thereof any revisions of such annual
or other budgets and operating plans, and within 30 days after any monthly
period in which there is a material adverse deviation from the annual budget,
a certificate of the President and chief financial officer of the Borrower
setting forth in reasonable detail the deviation and what actions the
Borrower has taken and proposes to take with respect thereto;
(d) together with the financial statements pursuant to clauses (a)
and (b) immediately above, a certificate of the President and the chief
financial officer of the Borrower stating that such officers have no
knowledge that any Event of Default (as defined below) or an event or
condition which with notice or lapse of time or both would constitute an
Event of Default (a "Default") has occurred and is continuing, or, if such
Default has occurred and is continuing, indicating the nature thereof and the
action which the Borrower has taken and proposes to take with respect thereto;
(e) promptly (but in any event within five business days) after the
discovery or receipt of notice of any Default or Event of Default or any
other material adverse change, event or circumstance affecting the Borrower
and its Subsidiaries taken as a whole (including, without limitation, the
filing of any material litigation against the Borrower or any Subsidiary), a
certificate of the President and chief financial officer of the Borrower
specifying the nature and
6.
<PAGE>
period of existence thereof and what actions the Borrower and its
Subsidiaries have taken and propose to take with respect thereto; and
(f) with reasonable promptness, such other information and
financial data concerning the Borrower and its Subsidiaries as any Person
entitled to receive information under the preceding subsections may
reasonably request.
Each of the financial statements referred to in subsections (a) and (b)
above shall present fairly in all material respects the consolidated
financial condition, results of operations and cash flows of the Borrower and
its Subsidiaries in accordance with GAAP applied on a consistent basis as of
the dates and throughout the periods set forth therein, subject in the case
of the unaudited financial statements to changes resulting from normal
year-end adjustments for recurring accruals (none of which would, alone or in
the aggregate, be materially adverse to the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Borrower and its Subsidiaries taken as a
whole).
The Borrower shall permit the Lender and its representatives, upon
reasonable notice and during normal business hours and at such other times as
any such Person may reasonably request, to (a) visit and inspect any of the
properties of the Borrower and its Subsidiaries, Co) examine the corporate
and financial records of the Borrower and its Subsidiaries and make copies
thereof or extracts therefrom and (c) discuss the affairs, finances and
accounts of any such entities with the directors and officers. The Lender
agrees that it will not make use of, disseminate, or in any way disclose any
information obtained pursuant to this paragraph to any person, firm or
business, except on a confidential basis to the investors in Lender or its
Affiliates. The Lender's obligations under the immediately preceding
sentence with respect to any portion of such information shall terminate if:
(i) it was in the public domain at or subsequent to the time it was
communicated to Lender by Borrower through no fault of Lender, (ii) it was
rightfully in Lender's possession free of any obligation of confidence at or
subsequent to the time it was communicated to Lender by Borrower; or (iii)
the communication was in response to a valid order by a court or other
governmental body, was otherwise required by law, or was necessary to
establish the rights of either party under this agreement.
So long as any amount payable by the Borrower hereunder shall remain
unpaid, the Borrower shall not (in each case without the prior written
consent of the holders of a majority in interest of the outstanding 12%
Subordinated Notes due September 9, 2004 of the Borrower of like tenor as
this Note):
(a) directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities,
except for dividends payable in shares of its Common Stock issued upon the
outstanding shares of Common Stock, or permit any of its Subsidiaries to
directly or indirectly declare or pay any dividends or make any distributions
upon any of its capital stock or other equity securities other than to the
Borrower;
(b) except for repurchases of capital stock or equity securities
from employees for consideration of $250,000 in the aggregate, directly or
indirectly redeem, purchase or otherwise acquire, or permit any of its
Subsidiaries to directly or indirectly redeem, purchase or otherwise acquire,
any of the Borrower's or any of its Subsidiaries' capital stock or other
equity
7.
<PAGE>
securities (including, without limitation, warrants, options and other rights
to acquire such capital or other equity securities); or directly or
indirectly redeem, purchase or make any payments with respect to any stock
appreciation rights, phantom stock plans or similar rights or plans;
(c) authorize, issue, incur or enter mm any agreement providing for
the issuance (contingent or otherwise) of, or permit any of its Subsidiaries
to authorize, issue, incur or enter into any agreement providing for any such
issuance of, any notes or debt securities or other evidences of Indebtedness
which are senior to or pari passu with the Notes in redemption or the payment
of principal, interest, premium, penalties or other mounts other than with
respect to the existing Senior Indebtedness of the Company;
(d) make, or permit any Subsidiary to make, any loans or advances
to, guarantees for the benefit of, or investments in, any Person, except for
(i) reasonable advances to employees in the ordinary course of business and
in an amount not to exceed $10,000 individually or $250,000 in the aggregate
in any twelve-month period, (ii) acquisitions permitted pursuant to
subparagraph (h) below, (/ii) investments not exceeding $50,000 in any
twelve-month period and (iv) investments in certificates of deposit of
federally insured banks having a maturity of 90 days or less, investment
grade short-term commercial paper, general cash management as approved by the
Board of Directors of the Company and similar cash equivalents;
(e) merge, consolidate or enter into any other business combination
with any Person or permit any Subsidiary to merge, consolidate or enter into
any other business combination with any Person, other than a merger or
consolidation between or among wholly owned Subsidiaries of the Borrower or a
merger in which the shareholders of the Borrower immediately before the
consummation of the merger will own at least 66-2/3% of the equity securities
of the surviving entity (except for acquisitions permitted pursuant to
paragraph (h) below);
(f) sell, lease or otherwise dispose of, or permit any Subsidiary
to sell, lease or otherwise dispose of, more than 25% of the consolidated
assets (including, without limitation, the capital stock of any Subsidiaries)
of the Borrower and its Subsidiaries (computed on the basis of the greater of
book value, determined in accordance with GAAP consistently applied, or fair
market value, determined by the Borrower's Board of Directors m its
reasonable good faith judgment) in any transaction or series of related
transactions (other than sales of inventory in the ordinary course of
business);
(g) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for federal income tax
purposes, but excluding any stock split, stock dividend, stock combination or
like event) or permit any Subsidiary of the Borrower to do any of the same;
(h) acquire, or permit any Subsidiary to acquire, any interest in
any company, business or other Person (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture,
involving an aggregate consideration (including, without limitation, the
assumption of liabilities whether direct or indirect) exceeding $500,000 in
8.
<PAGE>
any one transaction or series of related transactions or exceeding $1,000,000
in any twelve-month period;
(i) enter into, or permit any Significant Subsidiary (as such term
is defined in Rule 1-02 of Regulation S-X under the Securities Exchange Act
of 1934, as amended) to enter into, the ownership, active management or
operation of any business other than the business of developing,
manufacturing and selling biotechnology products and services for life
sciences research;
(j) become subject to, or permit any of its Subsidiaries to become
subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument (other than Indebtedness under
existing lines of credit and equipment leases outstanding on the date hereof)
which by its terms would under any circumstances restrict (i) the right of
any such Subsidiary to make loans or advances or pay dividends to, transfer
property to, or repay any Indebtedness owed to the Borrower or another
Subsidiary thereof or (ii) the Borrower's right to perform the provisions of
this Note, any other related document or the bylaws of the Borrower;
(k) make any amendment to the certificate of incorporation or
bylaws of the Borrower which adversely affects the interests of holders of
Notes;
(l) establish or acquire (i) any Significant Subsidiaries (provided
the Borrower shall be permitted to establish wholly owned Subsidiaries of the
Borrower) or (b) any Significant Subsidiaries organized outside of the United
States and its territorial possessions;
(m) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness
exceeding an aggregate principal amount of $250,000 outstanding at any time
on a consolidated basis, other than Indebtedness under existing lines of
credit and equipment leases outstanding on the date hereof;
(n) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens or
Encumbrances other than (i) tax liens with respect to taxes not yet due and
payable or which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established in accordance with
GAAP/consistently applied, (ii) deposits or pledges made in connection with,
or to secure payment of, utilities or similar services, workers'
compensation, unemployment insurance, old age pensions or other social
security obligations, and (iii) mechanics', materialmen's or contractors'
liens or encumbrances or any similar lien or restriction for amounts not yet
due and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP, consistently applied;
(o) make any capital expenditures (including, without limitation,
payments with respect to capitalized leases, as determined in accordance with
GAAP consistently applied) exceeding (by $100,000 or more), in the aggregate
on a consolidated basis during any twelve-month period, the amount
specifically allocated therefor in any budget and operating plan furnished to
the Lender pursuant to this Note;
9.
<PAGE>
(p) enter into any leases or other rental agreements (excluding
capitalized leases, as determined in accordance with GAAP consistently
applied) under which the amount of the aggregate lease payments for all such
agreements exceeds (by $100,000 or more), on a consolidated basis for any
twelve-month period, the amount specifically allocated therefor in any budget
and operating plan furnished to the Lender pursuant to this Note; and
(q) borrow against, pledge, assign, modify, cancel or surrender the
key-man life insurance policy in force relating to the President of the
Borrower.
So long as any amount payable by the Borrower hereunder shall
remain unpaid, the Borrower shall and shall cause each Subsidiary to (unless
it has received the prior written consent of the holders of a majority in
interest of the outstanding 12% Subordinated Notes due September 9, 2004 of
the Borrower of like tenor as this Note):
(a) at all times cause to be done all things necessary to.
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses the failure of which to maintain, preserve or renew would have a
Material Adverse Effect;
(b) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted in all material respects at all times;
(c) pay and discharge (within 30 days after becoming due and
payable) all material taxes, assessments and governmental charges imposed
upon its properties or upon the income or profits therefrom (in each case
before the same becomes delinquent and before penalties accrue thereon) and
all material claims for labor, materials or suppliers which if unpaid would
by law become a Lien or Encumbrance upon any of its property, unless and to
the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with GAAP,
consistently applied) have been established on its books with respect thereto;
(d) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be expected
to have a material adverse effect upon the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Borrower and its Subsidiaries taken as a whole;
(e) apply for and continue in force with adequate insurance
covering risks of such types and in such amounts as are customary for
corporations of similar size engaged in similar lines of business if
available on commercially reasonable terms;
(f) maintain the key-man life insurance policy of the President of
the Borrower;
10.
<PAGE>
(g) possess and maintain all Intellectual Property Rights necessary
to the conduct of their respective businesses, the failure of which to
maintain would have a Material Adverse Effect, and own all right, title and
interest in and to, or have a valid license for, all such Intellectual
Property Rights except to the extent that any challenge to the same is being
contested in good faith and by appropriate means; PROVIDED, HOWEVER, that in
the event that, at any time, the Borrower or any Subsidiary fails to possess
and maintain, or to own all right, title or interest in, or have a valid
license for, any such Intellectual Property Right, the Borrower shall be
entitled to cure its default under this paragraph by (A) identifying to the
reasonable satisfaction of the Lenders, an adequate substitute Intellectual
Property Right within ninety (90) days thereafter and (B) within ninety (90)
days after such identification, acquiring all right, title and interest in
such substitute Intellectual Property Right or entering into a licensing or
similar agreement, in form and substance reasonably satisfactory to the
Lender, providing the Borrower with a valid license therefor; and
(h) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with GAAP subject
to normal and recurring year-end audit adjustments, consistently applied.
As used herein:
"AFFILIATE" means any Person which, directly or indirectly, controls, is
controlled by or is under common control with another Person ("control,"
"controlled by" and "under common control with" with respect to any Person
meaning for the purposes of the foregoing the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise);
"INDEBTEDNESS" means, for any Person: (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase
price of property or services and all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses; (ii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and. remedies of the seller or lender
under such agreement in the event of default are limited to repossession or
sale of such property); (iii) all obligations under any lease of property
(whether real, personal or mixed) which, in accordance with GAAP, would, at
the time a determination is made, be required to be recorded as a capital
lease in respect of which such Person is liable as lessee; (iv) all
reimbursement or other obligations of such Person under or in respect of
letters of credit, bankers acceptances, interest rate swaps, caps, floors and
collars, currency swaps, or other similar financial products; (v) all
indebtedness of another Person of the types referred to in clause (i), (ii),
(iii) or (iv) above, guaranteed directly or indirectly in any manner by the
Person for whom Indebtedness is being determined, or in effect guaranteed
directly or indirectly by such Person through an agreement (A) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss,
11.
<PAGE>
(C) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether or not
such property is received or such services are rendered) or (D) otherwise to
assure a creditor against loss; and (vi) all indebtedness of another Person
of the types referred to in clause (i), (ii), (iii) or (iv) above secured by
(or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be' secured by) any Lien upon or in property
(including accounts and contract rights) owned by the Person for whom
Indebtedness is being determined, even though such Person has not assumed or
become liable for the payment of such indebtedness of such other Person;
"INTELLECTUAL PROPERTY RIGHTS" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service
marks, trade dress, trade names, logos and corporate names and registrations
and applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registrations
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation thereof,
(vi) trade secrets and other confidential information (including, without
limitation, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial and marketing plans and customer and
supplier lists and information), (vii) other intellectual property rights and
(viii) copies and tangible embodiments thereof (in whatever form or medium);
"LIEN OR ENCUMBRANCE" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right, easement, servitude, transfer
limit, restriction, title defect or other encumbrance of any kind (including,
without limitation, any conditional sale or other title retention agreement
or lease in the nature thereof, any sale of receivables with recourse
against the Borrower or any Affiliate thereof, any filing or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute, or any subordination arrangement in favor of another Person);
"MATERIAL ADVERSE EFFECT" has the meaning set forth in the Securities
Purchase Agreement dated as of September 9, 1997, among the Borrower and the
original purchasers of 12% Subordinated Notes due September 9, 2004 of the
Borrower.
"PERSON" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization or any other entity of whatever nature,
including any governmental agency or authority;
"PROPERTY" means any real, personal or mixed property, whether tangible
or intangible; and
"SUBSIDIARY" means, with respect to any Person, any entity controlled
(as such term is defined in the definition of "Affiliate" above) by such
Person.
12.
<PAGE>
Unless otherwise defined or the context otherwise requires, all
accounting terms used herein shall be construed, and all accounting
determinations and computations required hereunder shall be made, in
accordance with GAAP, consistently applied.
Any of the following events which shall occur shall constitute an "Event
of Default":
1. The Borrower shall fail to pay, within 5 business days after becoming
due, any amount of principal or interest hereunder or other amount payable
hereunder.
2. Any representation or warranty by the Borrower under or in connection
with this Note shall prove to have been incorrect in any material respect
when made or deemed made.
3. The Borrower shall fail to perform or observe in any material respect
(within 30 days of the date required) any term, covenant or agreement
contained herein.
4. The Borrower or any of its Significant Subsidiaries shall admit in
writing its inability to, or shall fail generally or be generally unable to,
pay its debts (including its payrolls) as such debts become due, or shall
make a general assignment for the benefit of creditors; or the Borrower or
any such Significant Subsidiary shall file a voluntary petition in bankruptcy
or a petition or answer seeking reorganization, to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Reform
Act of 1978, as amended or recodified from time to time (the "Bankruptcy
Code") or under any other state or federal law relating to bankruptcy or
reorganization granting relief to debtors, whether now or hereafter in
effect, or shall file an answer admitting the jurisdiction of the court and
the material allegations of any involuntary petition filed against the
Borrower or any such Significant Subsidiary pursuant to the Bankruptcy Code
or any such other state or federal law; or the Borrower or any such
Significant Subsidiary shall be adjudicated a bankrupt, or shall make an
assignment for the benefit of creditors, or shall apply for or consent to the
appointment of any custodian, receiver or trustee for all or any substantial
part of the Borrower's or any such Significant Subsidiary's property, or
shall take any action to authorize any of the actions or events set forth
above in this paragraph; or an involuntary petition seeking any of the relief
specified in this paragraph shall be filed against the Borrower or any such
Significant Subsidiary; or any order for relief shall be entered against the
Borrower or any such Significant Subsidiary in any involuntary proceeding
under the Bankruptcy Code or any such other state or federal law referred to
in this paragraph 4.
5. The Borrower or any of its Significant Subsidiaries shall (i)
liquidate, dissolve or wind up (or suffer any liquidation, dissolution or
winding up), except to the extent expressly permitted by this Note, (ii)
suspend its operations other than in the ordinary course of business, or
(iii) take any corporate action to authorize any of the actions or events set
forth above in this paragraph 5.
6. The Borrower or any Subsidiary shall fail (i) to make any payment of
any principal of, or interest or premium on, any Indebtedness (other than in
respect of this Note) in an aggregate principal amount outstanding of at
least $250,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness as of the date of such failure, or (ii) to
perform or observe any term,
13.
<PAGE>
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Indebtedness, when required to
be performed or observed, and such failure shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such failure to perform or observe is to accelerate, or to
permit the acceleration of, the maturity of such Indebtedness; or any such
Indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof.
7. A default or an event of default shall occur under any Senior
Indebtedness which-would permit the acceleration of such Senior Indebtedness
or any portion thereof.
8. A final judgment or order for the payment of money in excess of
$250,000 which is not fully covered by third-party insurance shall be
rendered against the Borrower or any of its Subsidiaries; or any non-monetary
judgment or order shall be rendered against the Borrower or any such
Subsidiary which has or would reasonably be expected to have a material
adverse effect upon the operations, properties, business or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a
whole; and in each case there shall be any period of 20 consecutive days
during which such judgment continues unsatisfied or during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect.
9. The Borrower shall incur a net operating loss greater than 2% of
revenue for (a) any three successive fiscal quarters or (b) for any fiscal
year and for the two consecutive fiscal quarters immediately following such
fiscal year, in each case as reflected in the consolidated financial
statements of the Borrower and its subsidiaries delivered hereunder.
If any Event of Default shall occur, the Lender may, subject to the
subordination provisions hereof and the rights of any Senior Indebtedness,
(i) by notice to the Borrower, declare the entire unpaid principal amount of
this Note, all interest accrued and unpaid hereon and all other amounts
payable hereunder to be forthwith due and payable, whereupon all unpaid
principal under this Note, all such accrued interest and all such other
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Borrower; and (ii) whether or not the actions
referred to in clause (i) have been taken, proceed to enforce all other
rights and remedies available to the Lender under applicable law..
No amendment or waiver of any provision of this Note, nor any consent to
any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Lender and then such
amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including by facsimile) and
mailed, sent or delivered to the respective parties hereto at or to the
following addresses or facsimile numbers (or at or to such other address or
facsimile number as shall be designated by any party in a written notice to
the other parties hereto):
14.
<PAGE>
If to the Lender: c/o Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, CA 94301
Attention: Gregory M. Avis
Mark G. Hilderbrand
Telephone: (650) 321-1166
Telecopy: (650) 321-1188
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303-0913
Attention: Thomas A. Bevilacqua, Esq.
Telephone: (415) 424-0160
Telecopy: (415) 496-2885
If to the Borrower: Clontech Laboratories, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attention: President
Telephone: (415) 424-8222
Telecopy: (415) 424-8419
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 E1 Camino Real
Palo Alto, CA 94306.2155
Attention: Brian Cunningham, Esq.
Telephone: (415) 843-5000
Telecopy: (415) $57-0663
All such notices and communications shall be effective (i) if delivered by
hand, upon delivery; (ii) if sent by mail, upon the earlier of the date of
receipt or five Business Days after deposit in the mail, first class (or air
mail, with respect to communications to be sent to or from the United
States), postage prepaid; and (iii) if sent by facsimile, when sent.
No failure on the part of the Lender to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or Partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights and
remedies under this Note are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to the Lender.
15.
<PAGE>
Whenever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under all applicable laws and
regulations. If, however, any provision of this Note shall be prohibited by
or invalid under any such law or regulation in any jurisdiction, it shall, as
to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not
deemed so modified, it shall be ineffective and invalid only to the extent of
such prohibition or invalidity without affecting the remaining provisions of
this Note, or the validity or effectiveness of such provision in any other
jurisdiction.
The Borrower agrees to pay on demand all costs and expenses of the
Lender, and the reasonable fees and disbursements of counsel in connection
with (i) any amendments, modifications or waivers of the terms hereof, (ii)
any Default or Event of Default, (iii) the enforcement or attempted
enforcement of, and preservation of any rights under, this Note, and (iv) any
out-of-court workout or other refinancing or restructuring or in any
bankruptcy case, including, without limitation, any and all losses, costs and
expenses sustained by the Lender as a result of any failure by the Borrower
to perform or observe its obligations contained herein. In addition, the
Borrower agrees to indemnify the Lender against and hold it harmless from any
and all present and future stamp, transfer, documentary and other such taxes,
levies, fees, assessments and other charges made by any jurisdiction by
reason of the execution, delivery, performance and enforcement of this Note.
This Note shall be binding upon, inure to the benefit of and be
enforceable by the Borrower, the Lender and their respective successors and
assigns.
The Borrower shall not have the right to assign its rights and
obligations hereunder or any interest herein or therein without the prior
written consent of the Lender. The Lender may sell, assign, transfer or
grant participations in all or any portion of the Lender's rights and
obligations hereunder. In the event of any such assignment, the assignee
shall be deemed the "Lender" for all purposes of this Note and any other
documents and instruments relating hereto with respect to the rights and
obligations assigned to it. The Borrower agrees that in connection with any
such grant or assignment, the Lender may deliver to the prospective
participant or assignee financial statements and other relevant information
relating to the Borrower and its Subsidiaries subject to the confidentiality
provisions herein.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF CALIFORNIA.
The Borrower hereby (i) submits to the non-exclusive jurisdiction of the
courts of the State of California and the Federal courts of the United States
sitting in the State of California for the purpose of any action or
proceeding arising out of or relating to this Note and any other documents
and instruments relating hereto, (ii) agrees that all claims in respect of
any such action or proceeding may be heard and determined in such courts,
(iii) irrevocably waives (to the extent permitted by applicable law) any
objection which it now or hereafter may have to the laying of venue of any
such action or proceeding brought in any of the foregoing courts, and any
objection on the ground that any such action or proceeding in any such court
has been brought in an inconvenient forum and (iv) agrees that a final
judgment in any such action or proceeding
16.
<PAGE>
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner permitted by law.
Nothing herein shall limit the right of the Lender to bring any action
or proceeding against the Borrower or its property in the courts of other
jurisdictions.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
17.
<PAGE>
IN WITNESS WHEREOF, the Borrower has duly executed this Note, as of the
date first above written.
BORROWER
CLONTECH LABORATORIES, INC.
By: /s/ Ken Fong
----------------------------------
Kenneth Fong
President
Accepted and Agreed
LENDER
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
--------------------------
General Partner
18.
<PAGE>
12% SUBORDINATED NOTE
Due September 9, 2004
U.S. $5,828,437.00 Dated: September 9, 1997
FOR VALUE RECEIVED, the undersigned, CLONTECH LABORATORIES, INC., a
California corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO
PAY to the order of SUMMIT SUBORDINATED DEBT FUND, L.P., (the "Lender"), the
principal sum of Five Million, Eight Hundred Twenty Eight Thousand, Four
Hundred Thirty Seven UNITED STATES DOLLARS (U.S. $5,828,437), on September 9,
2004.
The Borrower further promises to pay interest on the outstanding
principal amount of this Promissory Note (this "Note") from time to time at a
rate per annum equal at all times to 12.00%. At the end of the first annual
accrual period, commencing on the date hereof, and each annual accrual period
thereafter, Borrower shall pay one-half of the accrued interest for that
period to the Lender and the remaining one-half of the accrued interest for
that period shall be added to, and shall thereafter be treated for all
purposes as part of the principal amount of this Note. In the event that any
amount of principal or interest, or any other amount payable hereunder, is
not paid in full when due (whether at stated maturity, by acceleration or
otherwise), the Borrower shall pay interest on such unpaid principal,
interest or other amount, from the date such amount becomes due until the
date such amount is paid in full, payable on demand, at a rate per annum
equal at all times to 14.00%, compounded annually. In the event that, at any
time or from time to time, the Borrower shall incur a net operating loss
greater than 2% of revenue for any two successive fiscal quarters or for any
fiscal year (as reflected in the consolidated financial statements of the
Borrower and its subsidiaries delivered hereunder), then in each such
instance the rate of interest on unpaid principal, interest or other amounts
hereunder shall thereupon be increased by 2.00% per annum until such time as
the Borrower shall have a net operating profit for a full fiscal quarter.
Interest shall compound annually and shall accrue daily on the outstanding
principal amount of this Note and shall be calculated on the basis of a year
of 365 or 366 days, as the case may be, for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest is payable.
All payments hereunder shall be made in lawful money of the United
States of America and in same day or immediately available funds, prior to
10:00 a.m. (Pacific time), to the Lender, at Boston Safe Deposit & Trust Co.,
One Boston Place, Boston, MA 02108, Account Number 05-942-0, ABA Routing
Number 0110-01234, or to such other office and account of the Lender as it
from time to time shall designate in a written notice to the Borrower.
Whenever any payment hereunder shall be stated to be due, or whenever
any interest payment date or any other date specified hereunder would
otherwise occur, on a day other than a Business Day (as defined below), then,
except as otherwise provided herein, such payment shall be made, and such
interest payment date or other date shall occur, on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of payment of interest hereunder. As used herein, "Business
Day" means a day (i) other than
1.
<PAGE>
Saturday or Sunday, and (ii) on which commercial banks are open for business
in New York, New York, and San Francisco, California.
All payments shall be made hereunder unconditionally in full without
deduction, setoff, counterclaim or other defense. The Borrower represents
and warrants to the Lender that, to the best of the Borrower's knowledge,
there is no claim, defense, counterclaim or set-off which could be asserted
by or is available to the Borrower against the Lender.
Anything herein to the contrary notwithstanding, if during any period
for which interest is computed hereunder, the amount of interest computed on
the basis provided for in this Note, together with all fees, charges and
other payments which are treated as interest under applicable law, as
provided for herein or in any other document executed in connection herewith,
would exceed the amount of such interest computed on the basis of the Highest
Lawful Rate (as defined below), the Borrower shall not be obligated to pay,
and the Lender shall not be entitled to charge, collect, receive, reserve or
take, interest in excess of the Highest Lawful Rate, and during any such
period the interest payable hereunder shall be computed on the basis of the
Highest Lawful Rate. As used herein, "Highest Lawful Rate" means the maximum
non-usurious rate of interest, as in effect from time to time, which may be
charged, contracted for, reserved, received or collected by the Lender in
connection with this Note under applicable law.
The Borrower may, upon at least five (5) Business Days prior written
notice to the Lender, prepay the outstanding amount hereof in whole or in
part, without premium or penalty. Partial prepayments shall be in an
aggregate principal amount of at least $500,000 or a greater amount which is
an integral multiple of $500,000.
Notwithstanding anything herein to the contrary, the Borrower must
prepay all outstanding amounts hereunder upon the occurrence of (i) the
acquisition of the Borrower by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of the Borrower), (ii) a
sale of all or substantially all of the assets of the Borrower, (iii) a
liquidation, dissolution or winding up of the Borrower, or (iv) the
Borrower's sale of its Common Stock in a bona fide firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended.
Together with any prepayment hereunder, the Borrower shall pay accrued
interest to the date of such prepayment on the principal amount prepaid.
By accepting this Note, the Lender agrees that all payments on account
of the indebtedness, liabilities and other obligations of the Borrower to the
Lender and each other holder from time to time of this Note, including,
without limitation, all amounts of principal, all interest accrued hereon,
and all other amounts payable by the Borrower to the Lender under this Note
or in connection herewith (the "Subordinated Indebtedness") shall be
sub-ordinate and subject in right of payment, to the extent and in the manner
set forth herein, to the prior payment in full in cash or cash equivalents of
the Senior Indebtedness. As used herein, "Senior Indebtedness" shall mean
any indebtedness, liabilities and other obligations of the Borrower (whether
as primary obligor or as guarantor) to any Person (each a "Senior Lender")
with respect
2.
<PAGE>
to any working capital, revolving credit or other line of credit facility,
any term loan facility, or any other extension of credit by a bank, insurance
company or financial institution engaged in the business of lending money
(whether or not secured), including reimbursement obligations under letters
of credit (or local guaranties, as applicable) and obligations in respect of
bankers' acceptances, interest rate protection agreements and currency
exchange and purchase agreements, and any other indebtedness or other
obligations of the Borrower (i) for borrowed money or evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses, (ii) under leases which are capitalized under U.S. generally
accepted accounting principles ("GAAP"), (iii) under leases for equipment
used in the ordinary course of the Borrower's business, and (iv) with respect
to indebtedness of others for the payment of which the Borrower is
responsible or liable as co-obligor or guarantor and any renewals,
refundings, refinancings or other extensions thereof, except for any of the
foregoing held by any Affiliate (as defined below) of the Borrower, and
except for indebtedness or other obligations which are specifically
designated not to be Senior Indebtedness for purposes of this Note in the
instruments evidencing such indebtedness or obligations at the time of the
issuance thereof or which by their terms are subordinated to any other
category or class of indebtedness of the Borrower. The terms "indebtedness,"
"liabilities" and "obligations" are used herein in their most comprehensive
sense and include any and all advances, debts, obligations and liabilities,
now existing or hereafter arising, whether voluntary or involuntary and
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined.
As long as any of the Senior Indebtedness shall remain outstanding and
unpaid, the Lender shall not accept or receive, directly or indirectly, and
the Borrower shall not make, any Subordinated Debt Payment (as defined
below), except that prior to the occurrence of any Senior Lender Default (as
defined below) and receipt of the notice from the Senior Lender described
below, the Lender shall be entitled to accept and receive payments of
principal and interest under this Note,-in accordance with the terms of this
Note. Upon the occurrence of any Senior Lender Default (or if any Senior
Lender Default would exist immediately after the making of a Subordinated
Debt Payment), and upon receipt by the Borrower and the Lender of notice in
writing of such Senior Lender Default, and until such Senior Lender Default
is cured or waived, the Borrower shall not make, and the Lender shall not
accept or receive, any Subordinated Debt Payment. In the event that,
notwithstanding the foregoing provisions, any Subordinated Debt Payments
shall be received in contravention hereof by the Lender before all Senior
Indebtedness shall be paid, such Subordinated Debt Payments shall be held in
trust for the benefit of the Senior Lenders and shall be paid over or
delivered to the Senior Lenders for application to the payment in full in
cash or cash equivalents of all Senior Indebtedness remaining unpaid to the
extent necessary to give effect hereto, after giving effect to any concurrent
payments or distributions to any Senior Lender in respect of the Senior
Indebtedness. As used herein, "Senior Lender Default" means any payment
default in respect of any Senior Indebtedness, or any other default specified
in the agreement or instrument under which any Senior Indebtedness is issued,
continuing beyond the grace period, if any, specified in any such agreement
or instrument; and "Subordinated Debt Payment" means any payment or
distribution by or on behalf of the Borrower, directly or indirectly, of
assets of the Borrower of any kind or character, whether in cash, property or
securities, including on account of the purchase, redemption or other
acquisition of Subordinated Indebtedness, or by setoff, exchange or in any
other manner, for or on account of the Subordinated Indebtedness.
3.
<PAGE>
If, while any Subordinated Indebtedness is outstanding, any bankruptcy,
insolvency, reorganization, receivership, arrangement, marshalling of assets
and liabilities or similar proceeding is commenced by or against the Borrower
or its property, (i) the Senior Lenders shall be irrevocably authorized and
empowered (in the name of the Senior Lenders or in the name of the Lender or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution in respect of the Subordinated
Indebtedness and give acquittance therefor and to file claims and proofs of
claim and take such other action (including voting the Subordinated
Indebtedness) as they may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of the Senior. Lenders, but
only if the Lender does not do so prior to the date 30 days before the
expiration of the time to file claims or take other action in any such
proceedings; and (ii) the Lender shall promptly take such action as any
Senior Lender may reasonably request (A) to collect the Subordinated
Indebtedness for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the Subordinated Indebtedness, (B)
to execute and deliver to the Senior Lenders, such powers of attorney,
assignments and other instruments as they may request to enable them to
enforce any and all claims with respect to the Subordinated Indebtedness (to
the extent and in the manner provided herein), and (C) to collect and receive
any and all payments or distributions which may be payable or deliverable
upon or with respect to the Subordinated Indebtedness.
In the event of any payment or distribution of assets of the Borrower of
any kind or character, whether in cash, property or securities, upon the
dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Borrower or
its property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for
the benefit of creditors, or upon any other marshalling or composition of the
assets and liabilities of the Borrower, or otherwise: (i) all mounts owing on
account of the Senior Indebtedness shall first be paid m full in cash, or
payment provided for in cash or in cash equivalents, before any Subordinated
Debt Payment is made; and (ii) to the extent permitted by applicable law, any
Subordinated Debt Payment to which the Lender would be entitled except for
the provisions hereof, shall be paid or delivered by the trustee in
bankruptcy, receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution directly to the Senior
Lenders for application to the payment of the Senior Indebtedness in
accordance with clause (i) above, after giving effect to any concurrent
payment or distribution or provision therefor to the Senior Lenders in
respect of such Senior Indebtedness.
The Lender shall not (i) accelerate any Subordinated Indebtedness, or
demand or attempt to collect or commence any legal proceedings to collect,
any Subordinated Debt Payment prior to the date such payment becomes due and
payable pursuant to the terms thereof or, if later, prior to the first date
such amount is not prohibited from being paid pursuant to this Note or
institute any other actions or proceedings to enforce its rights or interests
under or in respect of this Note; (ii) exercise any rights under or with
respect to (A) any guaranties of the Subordinated Indebtedness, or (B) any
collateral securing the Subordinated Indebtedness, including causing or
compelling the pledge or delivery of any collateral, any attachment of, levy
upon, execution against, foreclosure upon or the taking of other action
against or institution of other proceedings with respect to any collateral,
notifying any account debtors of the Borrower or asserting any claim or
interest in any insurance with respect to the collateral, or attempt to do
any of the foregoing; (iii) exercise any rights to set-offs and counterclaims
in respect of any indebtedness, liabilities or
4.
<PAGE>
obligations of the Lender to the Borrower against any of the Subordinated
Indebtedness; or (iv) commence or maintain any action, suit or any other
legal or equitable proceeding against the Borrower, or join with any creditor
in any such proceeding, under any insolvency, bankruptcy, receivership,
liquidation, reorganization or other similar law. Notwithstanding the
foregoing prohibitions, the Lender may take any action available to it under
applicable law and under this Note, including demand or acceleration of this
Note and commencement of or participation in any such proceeding, if any of
the Senior Indebtedness shall have been accelerated or demand made for
payment in full thereof, or any such proceeding shall have been commenced by
a Senior Lender or any other Person other than the Lender.
The subordination provisions of this Note are intended solely for the
purpose of defining the relative rights against the Borrower of the Lender,
on the one hand, and the Senior Lenders, on the other hand. Nothing
contained herein shall (i) impair, as between the Borrower and the Lender,
the obligation of the Borrower to pay the principal of or interest on this
Note and its other obligations with respect to the Subordinated Indebtedness
as and when the same shall become due and payable in accordance with the
terms thereof, or (ii) otherwise affect the relative rights against the
Borrower of the Lender, on the one hand, and the creditors of the Borrower
(other than the Senior Lenders), on the other hand.
Until the payment and performance m full of all Senior Indebtedness, the
Lender shall not have, and shall not directly or indirectly exercise, any
rights that it may acquire by way of subrogation under this Note, by any
payment or distribution to the Senior Lenders hereunder or otherwise. Upon
the payment and performance in full of all Senior Indebtedness, the Lender
shall be subrogated to the rights of the Senior Lenders to receive payments
or distributions applicable to the Senior Indebtedness until the Subordinated
Indebtedness shall be paid in full. For the purposes of the foregoing
subrogation, no payments or distributions to the Senior Lenders of any cash,
property or securities to which the Lender would be entitled except for the
provisions of this Note shall, as among the Borrower, its creditors (other
than the Senior Lenders and the Lender), be deemed to be a payment by the
Borrower to or on account of the Senior Indebtedness.
The Lender by its acceptance hereof agrees to execute and deliver to any
Senior Lender such subordination agreement as may be reasonably requested by
such Senior Lender and as may be consistent with the subordination provisions
contained herein, and to execute, acknowledge, deliver, file, notarize and
register all such further agreements, instruments, certificates, documents
and assurances, and perform such acts as such Senior Lender shall deem
necessary or appropriate to effectuate the purposes of the subordination
provisions contained herein.
The Lender shall not, without the prior written consent of the Senior
Lenders, agree to or permit any amendment, modification or waiver of any of
the subordination provisions of this Note (including any amendment,
modification or waiver pursuant to an exchange of other securities or
instruments for outstanding Subordinated Indebtedness).
5.
<PAGE>
So long as any amount payable by the Borrower hereunder shall remain
unpaid, the Borrower shall deliver to the Lender:
(a) as soon as available but in any event within 30 days after the
end of each month in each fiscal year, unaudited consolidating and
consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for such month and from the period from the beginning of the
fiscal year to the end of such month, and unaudited consolidating and
consolidated balance sheets of the Borrower and its Subsidiaries as of the
end of such month, setting forth in each case comparisons to the Borrower's
annual budget and to the corresponding period in the preceding fiscal year,
and all such statements shall be prepared in accordance with GAAP,
consistently applied, except that they may not contain full footnote
disclosures and may be subject to normal year-end adjustments for recurring
accruals, and shall be certified by the chief financial officer of the
Borrower;
(b) as soon as available, but in any event within 90 days after the
end of each fiscal year; consolidating and consolidated statements of income
and cash flows of the Borrower and its Subsidiaries for such fiscal year, and
consolidating and consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such fiscal year-setting forth in each case
comparisons to the Borrower's annual budget and to the preceding fiscal year,
all prepared in accordance with GAAP, consistently applied, and with respect
to the consolidated portions of such statements accompanied by an opinion
containing no exceptions or qualifications (except for qualifications
regarding specified contingent liabilities) of a "Big-Six" accounting firm
selected by the Board of Directors of the Borrower;,
(c) at least 30 days, but not more than 90 days, prior to the
beginning of each fiscal year, an annual budget and operating plan prepared
on a monthly basis for the Borrower and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows and balance
sheets), and promptly upon preparation thereof any revisions of such annual
or other budgets and operating plans, and within 30 days after any monthly
period in which there is a material adverse deviation from the annual budget,
a certificate of the President and chief financial officer of the Borrower
setting forth in reasonable detail the deviation and what actions the
Borrower has taken and proposes to take with respect thereto;
(d) together with the financial statements pursuant to clauses (a)
and (b) immediately above, a certificate of the President and the chief
financial officer of the Borrower stating that such officers have no
knowledge that any Event of Default (as defined below) or an event or
condition which with notice or lapse of time or both would constitute an
Event of Default (a "Default") has occurred and is continuing, or, if such
Default has occurred and is continuing, indicating the nature thereof and the
action which the Borrower has taken and proposes to take with respect thereto;
(e) promptly (but in any event within five business days) after the
discovery or receipt of notice of any Default or Event of Default or any
other material adverse change, event or circumstance affecting the Borrower
and its Subsidiaries taken as a whole (including, without limitation, the
filing of any material litigation against the Borrower or any Subsidiary), a
certificate of the President and chief financial officer of the Borrower
specifying the nature and
6.
<PAGE>
period of existence thereof and what actions the Borrower and its
Subsidiaries have taken and propose to take with respect thereto; and
(f) with reasonable promptness, such other information and
financial data concerning the Borrower and its Subsidiaries as any Person
entitled to receive information under the preceding subsections may
reasonably request.
Each of the financial statements referred to in subsections (a) and (b)
above shall present fairly in all material respects the consolidated
financial condition, results of operations and cash flows of the Borrower and
its Subsidiaries in accordance with GAAP applied on a consistent basis as of
the dates and throughout the periods set forth therein, subject in the case
of the unaudited financial statements to changes resulting from normal
year-end adjustments for recurring accruals (none of which would, alone or in
the aggregate, be materially adverse to the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Borrower and its Subsidiaries taken as a
whole).
The Borrower shall permit the Lender and its representatives, upon
reasonable notice and during normal business hours and at such other times as
any such Person may reasonably request, to (a) visit and inspect any of the
properties of the Borrower and its Subsidiaries, Co) examine the corporate
and financial records of the Borrower and its Subsidiaries and make copies
thereof or extracts therefrom and (c) discuss the affairs, finances and
accounts of any such entities with the directors and officers. The Lender
agrees that it will not make use of, disseminate, or in any way disclose any
information obtained pursuant to this paragraph to any person, firm or
business, except on a confidential basis to the investors in Lender or its
Affiliates. The Lender's obligations under the immediately preceding
sentence with respect to any portion of such information shall terminate if:
(i) it was in the public domain at or subsequent to the time it was
communicated to Lender by Borrower through no fault of Lender, (ii) it was
rightfully in Lender's possession free of any obligation of confidence at or
subsequent to the time it was communicated to Lender by Borrower; or (iii)
the communication was in response to a valid order by a court or other
governmental body, was otherwise required by law, or was necessary to
establish the rights of either party under this agreement.
So long as any amount payable by the Borrower hereunder shall remain
unpaid, the Borrower shall not (in each case without the prior written
consent of the holders of a majority in interest of the outstanding 12%
Subordinated Notes due September 9, 2004 of the Borrower of like tenor as
this Note):
(a) directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities,
except for dividends payable in shares of its Common Stock issued upon the
outstanding shares of Common Stock, or permit any of its Subsidiaries to
directly or indirectly declare or pay any dividends or make any distributions
upon any of its capital stock or other equity securities other than to the
Borrower;
(b) except for repurchases of capital stock or equity securities
from employees for consideration of $250,000 in the aggregate, directly or
indirectly redeem, purchase or otherwise acquire, or permit any of its
Subsidiaries to directly or indirectly redeem, purchase or otherwise acquire,
any of the Borrower's or any of its Subsidiaries' capital stock or other
equity
7.
<PAGE>
securities (including, without limitation, warrants, options and other rights
to acquire such capital or other equity securities); or directly or
indirectly redeem, purchase or make any payments with respect to any stock
appreciation rights, phantom stock plans or similar rights or plans;
(c) authorize, issue, incur or enter mm any agreement providing for
the issuance (contingent or otherwise) of, or permit any of its Subsidiaries
to authorize, issue, incur or enter into any agreement providing for any such
issuance of, any notes or debt securities or other evidences of Indebtedness
which are senior to or pari passu with the Notes in redemption or the payment
of principal, interest, premium, penalties or other mounts other than with
respect to the existing Senior Indebtedness of the Company;
(d) make, or permit any Subsidiary to make, any loans or advances
to, guarantees for the benefit of, or investments in, any Person, except for
(i) reasonable advances to employees in the ordinary course of business and
in an amount not to exceed $10,000 individually or $250,000 in the aggregate
in any twelve-month period, (ii) acquisitions permitted pursuant to
subparagraph (h) below, (/ii) investments not exceeding $50,000 in any
twelve-month period and (iv) investments in certificates of deposit of
federally insured banks having a maturity of 90 days or less, investment
grade short-term commercial paper, general cash management as approved by the
Board of Directors of the Company and similar cash equivalents;
(e) merge, consolidate or enter into any other business combination
with any Person or permit any Subsidiary to merge, consolidate or enter into
any other business combination with any Person, other than a merger or
consolidation between or among wholly owned Subsidiaries of the Borrower or a
merger in which the shareholders of the Borrower immediately before the
consummation of the merger will own at least 66-2/3% of the equity securities
of the surviving entity (except for acquisitions permitted pursuant to
paragraph (h) below);
(f) sell, lease or otherwise dispose of, or permit any Subsidiary
to sell, lease or otherwise dispose of, more than 25% of the consolidated
assets (including, without limitation, the capital stock of any Subsidiaries)
of the Borrower and its Subsidiaries (computed on the basis of the greater of
book value, determined in accordance with GAAP consistently applied, or fair
market value, determined by the Borrower's Board of Directors m its
reasonable good faith judgment) in any transaction or series of related
transactions (other than sales of inventory in the ordinary course of
business);
(g) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for federal income tax
purposes, but excluding any stock split, stock dividend, stock combination or
like event) or permit any Subsidiary of the Borrower to do any of the same;
(h) acquire, or permit any Subsidiary to acquire, any interest in
any company, business or other Person (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture,
involving an aggregate consideration (including, without limitation, the
assumption of liabilities whether direct or indirect) exceeding $500,000 in
8.
<PAGE>
any one transaction or series of related transactions or exceeding $1,000,000
in any twelve-month period;
(i) enter into, or permit any Significant Subsidiary (as such term
is defined in Rule 1-02 of Regulation S-X under the Securities Exchange Act
of 1934, as amended) to enter into, the ownership, active management or
operation of any business other than the business of developing,
manufacturing and selling biotechnology products and services for life
sciences research;
(j) become subject to, or permit any of its Subsidiaries to become
subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument (other than Indebtedness under
existing lines of credit and equipment leases outstanding on the date hereof)
which by its terms would under any circumstances restrict (i) the right of
any such Subsidiary to make loans or advances or pay dividends to, transfer
property to, or repay any Indebtedness owed to the Borrower or another
Subsidiary thereof or (ii) the Borrower's right to perform the provisions of
this Note, any other related document or the bylaws of the Borrower;
(k) make any amendment to the certificate of incorporation or
bylaws of the Borrower which adversely affects the interests of holders of
Notes;
(l) establish or acquire (i) any Significant Subsidiaries (provided
the Borrower shall be permitted to establish wholly owned Subsidiaries of the
Borrower) or (b) any Significant Subsidiaries organized outside of the United
States and its territorial possessions;
(m) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness
exceeding an aggregate principal amount of $250,000 outstanding at any time
on a consolidated basis, other than Indebtedness under existing lines of
credit and equipment leases outstanding on the date hereof;
(n) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens or
Encumbrances other than (i) tax liens with respect to taxes not yet due and
payable or which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established in accordance with
GAAP/consistently applied, (ii) deposits or pledges made in connection with,
or to secure payment of, utilities or similar services, workers'
compensation, unemployment insurance, old age pensions or other social
security obligations, and (iii) mechanics', materialmen's or contractors'
liens or encumbrances or any similar lien or restriction for amounts not yet
due and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP, consistently applied;
(o) make any capital expenditures (including, without limitation,
payments with respect to capitalized leases, as determined in accordance with
GAAP consistently applied) exceeding (by $100,000 or more), in the aggregate
on a consolidated basis during any twelve-month period, the amount
specifically allocated therefor in any budget and operating plan furnished to
the Lender pursuant to this Note;
9.
<PAGE>
(p) enter into any leases or other rental agreements (excluding
capitalized leases, as determined in accordance with GAAP consistently
applied) under which the amount of the aggregate lease payments for all such
agreements exceeds (by $100,000 or more), on a consolidated basis for any
twelve-month period, the amount specifically allocated therefor in any budget
and operating plan furnished to the Lender pursuant to this Note; and
(q) borrow against, pledge, assign, modify, cancel or surrender the
key-man life insurance policy in force relating to the President of the
Borrower.
So long as any amount payable by the Borrower hereunder shall
remain unpaid, the Borrower shall and shall cause each Subsidiary to (unless
it has received the prior written consent of the holders of a majority in
interest of the outstanding 12% Subordinated Notes due September 9, 2004 of
the Borrower of like tenor as this Note):
(a) at all times cause to be done all things necessary to.
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses the failure of which to maintain, preserve or renew would have a
Material Adverse Effect;
(b) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted in all material respects at all times;
(c) pay and discharge (within 30 days after becoming due and
payable) all material taxes, assessments and governmental charges imposed
upon its properties or upon the income or profits therefrom (in each case
before the same becomes delinquent and before penalties accrue thereon) and
all material claims for labor, materials or suppliers which if unpaid would
by law become a Lien or Encumbrance upon any of its property, unless and to
the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with GAAP,
consistently applied) have been established on its books with respect thereto;
(d) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be expected
to have a material adverse effect upon the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Borrower and its Subsidiaries taken as a whole;
(e) apply for and continue in force with adequate insurance
covering risks of such types and in such amounts as are customary for
corporations of similar size engaged in similar lines of business if
available on commercially reasonable terms;
(f) maintain the key-man life insurance policy of the President of
the Borrower;
10.
<PAGE>
(g) possess and maintain all Intellectual Property Rights necessary
to the conduct of their respective businesses, the failure of which to
maintain would have a Material Adverse Effect, and own all right, title and
interest in and to, or have a valid license for, all such Intellectual
Property Rights except to the extent that any challenge to the same is being
contested in good faith and by appropriate means; PROVIDED, HOWEVER, that in
the event that, at any time, the Borrower or any Subsidiary fails to possess
and maintain, or to own all right, title or interest in, or have a valid
license for, any such Intellectual Property Right, the Borrower shall be
entitled to cure its default under this paragraph by (A) identifying to the
reasonable satisfaction of the Lenders, an adequate substitute Intellectual
Property Right within ninety (90) days thereafter and (B) within ninety (90)
days after such identification, acquiring all right, title and interest in
such substitute Intellectual Property Right or entering into a licensing or
similar agreement, in form and substance reasonably satisfactory to the
Lender, providing the Borrower with a valid license therefor; and
(h) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with GAAP subject
to normal and recurring year-end audit adjustments, consistently applied.
As used herein:
"AFFILIATE" means any Person which, directly or indirectly, controls, is
controlled by or is under common control with another Person ("control,"
"controlled by" and "under common control with" with respect to any Person
meaning for the purposes of the foregoing the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise);
"INDEBTEDNESS" means, for any Person: (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase
price of property or services and all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses; (ii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and. remedies of the seller or lender
under such agreement in the event of default are limited to repossession or
sale of such property); (iii) all obligations under any lease of property
(whether real, personal or mixed) which, in accordance with GAAP, would, at
the time a determination is made, be required to be recorded as a capital
lease in respect of which such Person is liable as lessee; (iv) all
reimbursement or other obligations of such Person under or in respect of
letters of credit, bankers acceptances, interest rate swaps, caps, floors and
collars, currency swaps, or other similar financial products; (v) all
indebtedness of another Person of the types referred to in clause (i), (ii),
(iii) or (iv) above, guaranteed directly or indirectly in any manner by the
Person for whom Indebtedness is being determined, or in effect guaranteed
directly or indirectly by such Person through an agreement (A) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss,
11.
<PAGE>
(C) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether or not
such property is received or such services are rendered) or (D) otherwise to
assure a creditor against loss; and (vi) all indebtedness of another Person
of the types referred to in clause (i), (ii), (iii) or (iv) above secured by
(or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be' secured by) any Lien upon or in property
(including accounts and contract rights) owned by the Person for whom
Indebtedness is being determined, even though such Person has not assumed or
become liable for the payment of such indebtedness of such other Person;
"INTELLECTUAL PROPERTY RIGHTS" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service
marks, trade dress, trade names, logos and corporate names and registrations
and applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registrations
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation thereof,
(vi) trade secrets and other confidential information (including, without
limitation, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial and marketing plans and customer and
supplier lists and information), (vii) other intellectual property rights and
(viii) copies and tangible embodiments thereof (in whatever form or medium);
"LIEN OR ENCUMBRANCE" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right, easement, servitude, transfer
limit, restriction, title defect or other encumbrance of any kind (including,
without limitation, any conditional sale or other title retention agreement
or lease in the nature thereof, any sale of receivables with recourse
against the Borrower or any Affiliate thereof, any filing or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute, or any subordination arrangement in favor of another Person);
"MATERIAL ADVERSE EFFECT" has the meaning set forth in the Securities
Purchase Agreement dated as of September 9, 1997, among the Borrower and the
original purchasers of 12% Subordinated Notes due September 9, 2004 of the
Borrower.
"PERSON" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization or any other entity of whatever nature,
including any governmental agency or authority;
"PROPERTY" means any real, personal or mixed property, whether tangible
or intangible; and
"SUBSIDIARY" means, with respect to any Person, any entity controlled
(as such term is defined in the definition of "Affiliate" above) by such
Person.
12.
<PAGE>
Unless otherwise defined or the context otherwise requires, all
accounting terms used herein shall be construed, and all accounting
determinations and computations required hereunder shall be made, in
accordance with GAAP, consistently applied.
Any of the following events which shall occur shall constitute an "Event
of Default":
1. The Borrower shall fail to pay, within 5 business days after becoming
due, any amount of principal or interest hereunder or other amount payable
hereunder.
2. Any representation or warranty by the Borrower under or in connection
with this Note shall prove to have been incorrect in any material respect
when made or deemed made.
3. The Borrower shall fail to perform or observe in any material respect
(within 30 days of the date required) any term, covenant or agreement
contained herein.
4. The Borrower or any of its Significant Subsidiaries shall admit in
writing its inability to, or shall fail generally or be generally unable to,
pay its debts (including its payrolls) as such debts become due, or shall
make a general assignment for the benefit of creditors; or the Borrower or
any such Significant Subsidiary shall file a voluntary petition in bankruptcy
or a petition or answer seeking reorganization, to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Reform
Act of 1978, as amended or recodified from time to time (the "Bankruptcy
Code") or under any other state or federal law relating to bankruptcy or
reorganization granting relief to debtors, whether now or hereafter in
effect, or shall file an answer admitting the jurisdiction of the court and
the material allegations of any involuntary petition filed against the
Borrower or any such Significant Subsidiary pursuant to the Bankruptcy Code
or any such other state or federal law; or the Borrower or any such
Significant Subsidiary shall be adjudicated a bankrupt, or shall make an
assignment for the benefit of creditors, or shall apply for or consent to the
appointment of any custodian, receiver or trustee for all or any substantial
part of the Borrower's or any such Significant Subsidiary's property, or
shall take any action to authorize any of the actions or events set forth
above in this paragraph; or an involuntary petition seeking any of the relief
specified in this paragraph shall be filed against the Borrower or any such
Significant Subsidiary; or any order for relief shall be entered against the
Borrower or any such Significant Subsidiary in any involuntary proceeding
under the Bankruptcy Code or any such other state or federal law referred to
in this paragraph 4.
5. The Borrower or any of its Significant Subsidiaries shall (i)
liquidate, dissolve or wind up (or suffer any liquidation, dissolution or
winding up), except to the extent expressly permitted by this Note, (ii)
suspend its operations other than in the ordinary course of business, or
(iii) take any corporate action to authorize any of the actions or events set
forth above in this paragraph 5.
6. The Borrower or any Subsidiary shall fail (i) to make any payment of
any principal of, or interest or premium on, any Indebtedness (other than in
respect of this Note) in an aggregate principal amount outstanding of at
least $250,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness as of the date of such failure, or (ii) to
perform or observe any term,
13.
<PAGE>
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Indebtedness, when required to
be performed or observed, and such failure shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such failure to perform or observe is to accelerate, or to
permit the acceleration of, the maturity of such Indebtedness; or any such
Indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof.
7. A default or an event of default shall occur under any Senior
Indebtedness which-would permit the acceleration of such Senior Indebtedness
or any portion thereof.
8. A final judgment or order for the payment of money in excess of
$250,000 which is not fully covered by third-party insurance shall be
rendered against the Borrower or any of its Subsidiaries; or any non-monetary
judgment or order shall be rendered against the Borrower or any such
Subsidiary which has or would reasonably be expected to have a material
adverse effect upon the operations, properties, business or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a
whole; and in each case there shall be any period of 20 consecutive days
during which such judgment continues unsatisfied or during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect.
9. The Borrower shall incur a net operating loss greater than 2% of
revenue for (a) any three successive fiscal quarters or (b) for any fiscal
year and for the two consecutive fiscal quarters immediately following such
fiscal year, in each case as reflected in the consolidated financial
statements of the Borrower and its subsidiaries delivered hereunder.
If any Event of Default shall occur, the Lender may, subject to the
subordination provisions hereof and the rights of any Senior Indebtedness,
(i) by notice to the Borrower, declare the entire unpaid principal amount of
this Note, all interest accrued and unpaid hereon and all other amounts
payable hereunder to be forthwith due and payable, whereupon all unpaid
principal under this Note, all such accrued interest and all such other
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Borrower; and (ii) whether or not the actions
referred to in clause (i) have been taken, proceed to enforce all other
rights and remedies available to the Lender under applicable law..
No amendment or waiver of any provision of this Note, nor any consent to
any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Lender and then such
amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including by facsimile) and
mailed, sent or delivered to the respective parties hereto at or to the
following addresses or facsimile numbers (or at or to such other address or
facsimile number as shall be designated by any party in a written notice to
the other parties hereto):
14.
<PAGE>
If to the Lender: c/o Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, CA 94301
Attention: Gregory M. Avis
Mark G. Hilderbrand
Telephone: (650) 321-1166
Telecopy: (650) 321-1188
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303-0913
Attention: Thomas A. Bevilacqua, Esq.
Telephone: (415) 424-0160
Telecopy: (415) 496-2885
If to the Borrower: Clontech Laboratories, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attention: President
Telephone: (415) 424-8222
Telecopy: (415) 424-8419
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 E1 Camino Real
Palo Alto, CA 94306.2155
Attention: Brian Cunningham, Esq.
Telephone: (415) 843-5000
Telecopy: (415) $57-0663
All such notices and communications shall be effective (i) if delivered by
hand, upon delivery; (ii) if sent by mail, upon the earlier of the date of
receipt or five Business Days after deposit in the mail, first class (or air
mail, with respect to communications to be sent to or from the United
States), postage prepaid; and (iii) if sent by facsimile, when sent.
No failure on the part of the Lender to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or Partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights and
remedies under this Note are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to the Lender.
15.
<PAGE>
Whenever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under all applicable laws and
regulations. If, however, any provision of this Note shall be prohibited by
or invalid under any such law or regulation in any jurisdiction, it shall, as
to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not
deemed so modified, it shall be ineffective and invalid only to the extent of
such prohibition or invalidity without affecting the remaining provisions of
this Note, or the validity or effectiveness of such provision in any other
jurisdiction.
The Borrower agrees to pay on demand all costs and expenses of the
Lender, and the reasonable fees and disbursements of counsel in connection
with (i) any amendments, modifications or waivers of the terms hereof, (ii)
any Default or Event of Default, (iii) the enforcement or attempted
enforcement of, and preservation of any rights under, this Note, and (iv) any
out-of-court workout or other refinancing or restructuring or in any
bankruptcy case, including, without limitation, any and all losses, costs and
expenses sustained by the Lender as a result of any failure by the Borrower
to perform or observe its obligations contained herein. In addition, the
Borrower agrees to indemnify the Lender against and hold it harmless from any
and all present and future stamp, transfer, documentary and other such taxes,
levies, fees, assessments and other charges made by any jurisdiction by
reason of the execution, delivery, performance and enforcement of this Note.
This Note shall be binding upon, inure to the benefit of and be
enforceable by the Borrower, the Lender and their respective successors and
assigns.
The Borrower shall not have the right to assign its rights and
obligations hereunder or any interest herein or therein without the prior
written consent of the Lender. The Lender may sell, assign, transfer or
grant participations in all or any portion of the Lender's rights and
obligations hereunder. In the event of any such assignment, the assignee
shall be deemed the "Lender" for all purposes of this Note and any other
documents and instruments relating hereto with respect to the rights and
obligations assigned to it. The Borrower agrees that in connection with any
such grant or assignment, the Lender may deliver to the prospective
participant or assignee financial statements and other relevant information
relating to the Borrower and its Subsidiaries subject to the confidentiality
provisions herein.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF CALIFORNIA.
The Borrower hereby (i) submits to the non-exclusive jurisdiction of the
courts of the State of California and the Federal courts of the United States
sitting in the State of California for the purpose of any action or
proceeding arising out of or relating to this Note and any other documents
and instruments relating hereto, (ii) agrees that all claims in respect of
any such action or proceeding may be heard and determined in such courts,
(iii) irrevocably waives (to the extent permitted by applicable law) any
objection which it now or hereafter may have to the laying of venue of any
such action or proceeding brought in any of the foregoing courts, and any
objection on the ground that any such action or proceeding in any such court
has been brought in an inconvenient forum and (iv) agrees that a final
judgment in any such action or proceeding
16.
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shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner permitted by law.
Nothing herein shall limit the right of the Lender to bring any action
or proceeding against the Borrower or its property in the courts of other
jurisdictions.
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17.
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IN WITNESS WHEREOF, the Borrower has duly executed this Note, as of the
date first above written.
BORROWER
CLONTECH LABORATORIES, INC.
By: /s/ Ken Fong
----------------------------------
Kenneth Fong
President
Accepted and Agreed
LENDER
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
--------------------------
General Partner
18.
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LOAN AGREEMENT
This AMENDED AND RESTATED LOAN AGREEMENT ("AGREEMENT") is made and
entered into as of September 1, 1998 by and between CLONTECH LABORATORIES,
INC., a California corporation ("Borrower") and UNION BANK OF CALIFORNIA,
N.A., ("Bank"). This Agreement amends and restates in its entirety that
certain Loan Agreement dated June 17, 1997, as amended from time to time (the
"Agreement"); between Bank and Borrower.
SECTION 1 THE LOAN
1.1.1 THE REVOLVING LOAN. Bank will loan to Borrower an amount not
to exceed Four Million and No/100 Dollars ($4,000,000) outstanding in the
aggregate at any one time (the "Revolving Loan"). Borrower may borrow, repay
and reborrow all or part of the Revolving Loan in accordance with the terms
of the Revolving Note; provided, however, that for at least thirty (30)
consecutive days between September 1, 1998 and June 1, 1999, the principal
amount outstanding under the Revolving Loan must be zero (0); the principal
amount outstanding will not include outstanding standby letters of credit and
letters of recommendation issued by Bank. All borrowings of the Revolving
Loan must be made before June 1, 1999 at which time all unpaid principal and
interest of the Revolving Loan shall be due and payable. The Revolving Loan
shall be evidenced by a promissory note (the "Revolving Note") on the
standard form used by Bank for commercial loans. Bank shall enter each
amount borrowed and repaid in Bank's records and such entries shall be deemed
to be the amount of the Revolving Loan outstanding. Omission of Bank to make
any such entries shall not discharge Borrower of its obligation to repay in
full with interest all amounts borrowed.
1.1.1.1 THE STANDBY L/C SUBLIMIT. As a sublimit to the Revolving
Loan, Bank shall issue, for the account of Borrower, one or more irrevocable,
standby letters of credit (individually, an "L/C" and collectively, the
"L/Cs") and one or more secured or unsecured letters of recommendation
("Letters of Recommendation") to The Bank of Tokyo-Mitsubishi, Ltd. ("BTM")
and its affiliates. All such standby L/Cs and Letters of Recommendation
shall be drawn on such terms and conditions as are acceptable to Bank;
secured Letters of Recommendation shall be defined as those Letters of
Recommendation supported by an L/C as required by BTM. The aggregate amount
available to be drawn under all outstanding l/Cs and unsecured Letters of
Recommendation and the aggregate amount of unpaid reimbursement obligations
under drawn l/Cs shall not exceed Two Million Five Hundred Thousand Dollars
and No/100 ($2,500,000) and shall reduce, dollar for dollar, the maximum
amount available under the Revolving Loan. Each L/C shall be governed by the
terms of (and Borrower agrees to execute) Bank's standard form for standby
L/C applications and reimbursement agreements. No L/C and Letter of
Recommendation shall be issued after June 1, 1999 and no L/C and Letter of
Recommendation shall expire after August 1, 1999.
1.1.2 THE REVOLVER-TO-TERM LOAN. Bank will loan to Borrower an
amount not to exceed Two Million Dollars and No/100 ($2,000,000) outstanding
in the aggregate at any one time (the "Revolver-To-Term Loan"). Borrower may
borrow, repay and reborrow all or part of the Revolver-To-Term Loan in
accordance with the terms of the Revolver-To-Term Note. All requests for
advances must be accompanied by Invoices submitted to Bank, where upon Bank
1.
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will advance up to 80% of invoice cost. Furthermore, all borrowings of the
Revolver-To-Term Loan must be made before June 30, 1999 at which time all
unpaid principal under the Revolver-To-Term Loan shall be converted to a
fully amortizing loan into Sixty (60) months with the final maturity date of
June 30, 2004. In the event of a prepayment of principal after such
conversion and payment of any resulting fees, any prepaid amounts shall be
applied to the scheduled principal payments in the reverse order of their
maturity. The Revolver-To-Term Loan shall be evidenced by a promissory note
(the "Revolver-To-Term Note") on the standard form used by Bank for
commercial loans. Bank shall enter each amount borrowed and repaid to Bank's
records and such entries shall be deemed to be the amount of the
Revolver-To-Term Loan outstanding. Omission of Bank to make any such
entities shall not discharge Borrower of its obligation to repay in full with
interest all amounts borrowed.
1.1.3 TERM LOAN A. Bank previously made a certain term loan ("Term
Loan A") to Borrower, which matures on December 31, 2002. The current
outstanding principal amount of the Term Loan A Is One Million Five Hundred
Forty-Seven Thousand Six Hundred Nineteen and 00/100 Dollars ($1,547,619.00).
This Term Loan A is evidenced by a promissory note ("Term Note A") on the
standard form used by Bank for commercial loans. In the event of a prepayment
of principal and any resulting fees, any prepaid amounts shall be applied to the
scheduled principal payments in the reverse order of their maturity.
1.1.4 TERM LOAN B. Bank previously made a certain term loan ("Term
Loan B") to Borrower, which matures on June 30, 2005. The current
outstanding principal amount of the Term Loan B is Two Million Five Hundred
Thousand Dollars ($2,500,000). This Term Loan B is evidenced by a promissory
note ("Term Note B") on the standard form used by Bank for commercial loans.
In the event of a prepayment of principal and any resulting fees, any prepaid
amounts shall be applied to the scheduled principal payments in the reverse
order of their maturity.
1.2 TERMINOLOGY. As used herein the word "Loan" shall mean,
collectively, all the credit facilities described above. As used herein the
word "Note" shall mean, collectively, all the promissory notes described
above. As used herein, the words "Loan Documents" shall mean all documents
executed in connection with this Agreement.
1.3 PURPOSE OF LOAN. The proceeds of the Revolving Loan shall be used
for general working capital purposes and the proceeds of the Revolver-To-Term
Loan shall be used only for capital expenditures, verified with the
submission of invoices prior to Bank's 80% advance rate on submitted invoices.
1.4 INTEREST. The unpaid principal balance of the Revolving Loan
shall bear interest at the Reference Rate or, LIBOR provided in the Revolving
Note.
1.5 INTEREST. The unpaid principal balance of the Revolver-To-Term
Loan shall bear interest at the rate or rates provided in the
Revolver-To-Term Note and selected by Borrower. The Revolver-To-Term Loan
may be prepaid in full or in part only in accordance with the terms of the
Revolver-To-Term Note and any such prepayment shall be subject to the
prepayment fee provided for therein.
2.
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1.6 INTEREST. The unpaid principal balance of Term Loan A and Term
Loan B shall bear Interest at the rate or rates provided in the Term Loan
Note A and Term Loan Note B and selected by Borrower. The Term Loans A and B
may be prepaid in full or in part only in accordance with the terms of the
Term Loan Notes A and B and any such prepayment shall be subject to the
prepayment fee provided for therein.
1.7 COMMITMENT FEE. Borrower shall pay in advance a fee of Ten
Thousand Dollars ($10,000.00) on or before the date of execution of this
Agreement or at the time the above referenced commitments are booked on
Bank's loan system. No portion of this fee shall be reimbursable.
1.8 BALANCES. Borrower shall maintain its major depository accounts
with Bank until the Note and all sums payable pursuant to this Agreement have
been paid in full.
1.9 DISBURSEMENT. Upon execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorization
executed by Borrower.
1.10 SECURITY. Prior to any disbursement of the Loan, Borrower shall
have executed a security agreement, on Bank's standard form, and a financing
statement, suitable for filing in the office of the Secretary of State of the
State of California and any other state designated by Bank, granting to Bank
a first priority security Interest in such of Borrower's property as is
described in said security agreement. Exceptions to Bank's first priority,
if any, are permitted only as otherwise provided in this Agreement. At
Bank's request, Borrower will also obtain executed landlord's waivers on
Bank's form covering all of Borrower's property located on leased or
encumbered real property.
1.11 CONTROLLING DOCUMENT. In the event of any inconsistency between
the terms of this Agreement and any Note or any of the other Loan Documents,
the terms of such Note or other Loan Documents will prevail over the terms of
this Agreement.
SECTION 2 CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied with all
terms and conditions required by this Agreement to be performed or complied
with by it prior to or at the date of the making of such disbursement and
shall have executed and delivered to Bank the Note and other documents deemed
necessary by Bank.
2.2 BORROWING RESOLUTION. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such
resolutions shall also designate the persons who are authorized to act on
Borrower's behalf in connection with this Agreement and to do the things
required of Borrower pursuant to this Agreement.
3.
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2.3 CONTINUING COMPLIANCE. At the time any disbursement is to be
made, there shall not exist any event, condition or act which constitutes an
event of default under Section 6 hereof or any event, condition or act which
with notice, lapse of time or both would constitute such event of default;
nor shall there be any such event, condition, or act immediately after the
disbursement were it to be made.
SECTION 3 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower is the
manufacture of biotech products.
3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling
interest or at least a 25% ownership Interest) and their addresses, and the
names of Borrower's principal shareholders, are as provided on a schedule
delivered to Bank on or before the date of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and performance of
this Agreement, the Note and all other agreements and instruments required by
Bank in connection with the Loan are not in contravention of any of the terms
of any Indenture, agreement or undertaking to which Borrower is a party or by
which it or any of its property is bound or affected.
3.4 FINANCIAL STATEMENTS. The financial statements of Borrower,
including both a balance sheet at June 30, 1998, together with supporting
schedules, and an Income statement for the Six (6) months ended June
30, 1998, have heretofore been furnished to Bank, and are true and complete
and fairly represent the financial condition of Borrower during the period
covered thereby. Since June 30, 1998, there has been no material adverse
change in the financial condition or operations of Borrower.
3.5 TITLE. Except for assets which may have been disposed of in the
ordinary course of business, Borrower has good and marketable title to all of
the property reflected in its financial statements delivered to Bank and to
all property acquired by Borrower since the date of said financial
statements, free and clear of all liens, encumbrances, security interests and
adverse claims except those specifically referred to in said financial
statements.
3.6 LITIGATION. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably likely
to affect the financial condition, property or business of Borrower in a
materially adverse manner or result in liability in excess of Borrower's
Insurance coverage.
3.7 DEFAULT. Borrower is not now in default in the payment of any of
its material obligations, and there exists no event, condition or act which
constitutes an event of default under Section 6 hereof and no condition,
event or act which with notice or lapse of time, or both, would constitute an
event of default.
4.
<PAGE>
3.8 ORGANIZATION. Borrower is duly organized and existing under the
laws of the state of its organization, and has the power and authority to
carry on the business in which it is engaged and/or proposes to engage.
3.9 POWER. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and all of the other Loan
Documents.
3.10 AUTHORIZATION. This Agreement and all things required by this
Agreement have been duly authorized by all requisite action of Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good standing in
any Jurisdiction where such qualification is required.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with respect
to any applicable laws, rules, ordinances or regulations which materially
affect the operations or financial condition of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of
Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as
defined in ERISA has occurred with respect to any such plan.
3.14 REGULATION U. No action has been taken or is currently planned by
Borrower, or any agent acting on its behalf, which would cause this Agreement
or the Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities and
Exchange Act of 1934, in each case as in effect now or as the same may
hereafter be in effect. Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock as one of its
important activities and none of the proceeds of the Loan will be used
directly or indirectly for such purpose.
3.15 CONTINUING REPRESENTATIONS. These representations shall be
considered to have been made again at and as of the date of each disbursement
of the Loan and shall be true and correct as of such date or dates.
SECTION 4 AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any other
or the Loan Documents have been paid in full, unless Bank waives compliance in
writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the Loan only
as provided in subsection 1.3 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge promptly
all taxes, assessments and other governmental charges and claims levied or
imposed upon it or its property, or any part thereof, provided, however,
that Borrower shall have the right in good faith to contest any such taxes,
assessments, charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges
and claims.
5.
<PAGE>
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and preserve its
existence and assets and all rights, franchises, licenses and other authority
necessary for the conduct of its business and will maintain and preserve its
property, equipment and facilities in good order, condition and repair. Bank
may, at reasonable times, visit and inspect any or the properties of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank to have access thereto, to make
examination and photocopies thereof, and to make audits during regular
business hours. Costs for such audits shall be paid by Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to Bank:
(a) Within Forty Forty-Five (45) days after the close of each
fiscal quarter, except for the final quarter of each fiscal year, its
unaudited balance sheet as of the close of such fiscal quarter, its unaudited
income and expense statement with Supportive schedules and statement of
retained earnings for that fiscal quarter, prepared in accordance with
generally accepted accounting principles;
(b) Within One Hundred and Twenty (120) days alter the close of
each fiscal year, a copy of its statement of financial condition including at
least its balance sheet as of the close of such fiscal year, its income and
expense statement and retained earnings statement for such fiscal year,
examined and prepared on an audited basis by independent certified public
accountants selected by Borrower and reasonably satisfactory to Bank, in
accordance with generally accepted accounting principles applied on a basis
consistent with that of the previous year;
(c) Such other financial statements and information as Bank may
reasonably request from time to time;
(d) In connection with each financial statement provided
hereunder, a statement executed by the chief financial officer of Borrower,
certifying that no default has occurred and no event exists which with notice
or the lapse of time, or both, would result in a default hereunder;
(e) In connection with each fiscal year-end statement required
hereunder, any management letter of Borrower's certified public accountants;
(f) Prompt written notice to Bank of all events of default under
any of the terms or provisions of this Agreement or of any other agreement,
contract, document or instrument entered, or to be entered into with Bank;
and of any litigation which, if decided adversely to Borrower, would have a
material adverse effect on Borrower's financial condition; and of any other
matter which has resulted in, or is likely to result in, a material adverse
change in its financial condition or operations; and
(g) Prior written notice to Bank of any changes in Borrower's
officers and other senior management; Borrower's name; and location of
Borrower's assets, principal place of business or chief executive office; and
6.
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(h) Within Forty-Five (45) days after each calendar quarter end, a
copy of Borrowers quarterly accounts receivable aging and accounts payable
aging.
4.6 QUICK RATIO. Borrower shall maintain at all times a ratio of
cash, accounts receivable and marketable securities to current liabilities of
not less than 1.1:1.0, as such terms are defined by generally accepted
accounting principles.
4.7 TANGIBLE NET WORTH. Borrower will at all times maintain Tangible
Net Worth of not less than Twelve Million Dollars ($12,000,000). "Tangible
Net Worth" shall mean net worth decreased by patents, licenses, trademarks,
trade names, goodwill and other similar intangible assets, organizational
expenses, and monies due from affiliates (including officers, shareholders
and directors).
4.8 DEBT TO TANGIBLE NET WORTH. Borrower will at all times maintain a
ratio of total liabilities to tangible net worth of not greater than 1.3:1.0.
"Tangible Net Worth" shall mean net worth decreased by patents, licenses,
trademarks, trade names, goodwill and other similar intangible assets,
organizational expenses, and monies due from affiliates (including officers,
shareholders and directors). Liabilities shall include outstanding Standby
L/Cs, Letters of Recommendation and Guaranties.
4.9 PROFITABILITY. Borrower will maintain a net profit, after
provision for income taxes, of any positive amount, as reported at the end of
each fiscal quarter.
4.10 CASH FLOW. Borrower will maintain a ratio of Cash Flow to Debt
Service of not less than 1.5:1.0. Compliance with this subsection shall be
measured as of the end of each fiscal quarter. "Cash Flow" shall mean net
profit after taxes plus depreciation, amortization and other noncash expenses
minus dividends and treasury stock for the three (3) month period immediately
preceding the data of calculation. "Debt Service" shall mean that portion of
long-term liabilities and capital leases coming due within three (3) months
of the date of calculation.
4.11 CASH BALANCES. Borrower will maintain cash of not less than Three
Million Dollars at all times. Compliance with this subsection shall be
measured as of the end of each fiscal quarter. "Cash" shall mean deposit
accounts maintained in the ordinary course of business, demand and time
deposits with maturities less than one year, investments in money market
programs and securities issued by The United States of America or any state
of the United States with maturities of one year or less.
4.12 INSURANCE. Borrower will keep all of its insurable property,
real, personal or mixed, insured by good and responsible companies against
fire and such other risks as are customarily insured against by companies
conducting similar business with respect to like properties. Borrower will
maintain adequate worker's compensation insurance and adequate insurance
against liability for damages to persons and property.
4.13 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon demand by
Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other
Information concerning its affairs as Bank may request from time to time.
7.
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4.14 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to
the reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting, modifying or compromising the Loan or in enforcing or
exercising its rights or remedies created by, connected with or provided for
in this Agreement or any of the Loan Documents, whether or not an
arbitration, judicial action or other proceeding is commenced. If such
proceeding is commenced, only the prevailing party shall be entitled to
attorneys' fees and court costs.
4.15 BANK EXPENSES. Borrower will pay or reimburse Bank for all costs,
expenses and fees incurred by Bank in preparing and documenting this
Agreement and the Loan, and all amendments and modifications thereof,
including but not limited to all filing and recording fees, costs of
appraisals, insurance and attorneys' fees, including the reasonable estimate
of the allocated costs and expenses of in-house legal counsel and legal staff.
4.16 REPORTS UNDER PENSION PLANS. Borrower will furnish to Bank, as
soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined
benefit pension plans of Borrower described in Section 3 above has occurred,
a statement of an authorized officer of Borrower describing such event or
condition and the action, if any, which Borrower proposes to take with
respect thereto.
SECTION 5 NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement or
any other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 ENCUMBRANCES AND LIENS. Borrower will not create, assume or
suffer to exist any mortgage, pledge, security interest, encumbrance, or lien
(other than for taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real, personal or
mixed, now owned or hereafter acquired, or upon the income or profits
thereof, except to Bank and except for minor encumbrances and easements on
real property which do not affect its market value, and except for existing
liens on Borrower's personal property and future purchase money security
interests encumbering only the personal property purchased. All of such
permitted personal property liens shall not exceed, in the aggregate, Two
Hundred Fifty Thousand and No/100 Dollars ($250,000) at any time.
5.2 BORROWINGS. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
Indebtedness, except to Bank or except to a financial institution at face
value for deposit or collection purposes only and without any fee other than
fees normally charged by the financial institution for deposit or collection
services. Borrower will not borrow any money, become contingently liable to
borrow money, nor enter any agreement to directly or indirectly obtain
borrowed money, except pursuant to agreements made with Bank.
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will neither
liquidate nor dissolve nor enter into any consolidation, merger, partnership
or other combination, nor convey,
8.
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nor sell, nor lease all or the greater part of its assets or business, nor
purchase or lease all or the greater part of the assets or business of
another; provided, however, Borrower may acquire, merge or consolidate with
another corporation if Borrower is the surviving corporation and the
aggregate value of the assets so transferred does not exceed Ten percent
(10%) of Borrower's tangible net worth as of the end of the month prior to
the effective date of such combination and such assets will not be subject to
any lien or encumbrance following the effective date of such combination.
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not, except in the
ordinary course of business as currently conducted, make any loans or
advances, become a guarantor or surety, pledge its credit or properties in
any manner or extend credit.
5.5 INVESTMENTS. Borrower will not purchase the debt or equity of
another person or entity except for savings accounts and certificates of
deposit of Bank, direct U.S. Government obligations and commercial paper
issued by corporations with the top ratings of Moody's or Standard & Poor's,
provided all such permitted investments shall mature within one year of
purchase.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or
authorize or make any other distribution with respect to any of its stock now
or hereafter outstanding.
5.7 PAYMENTS ON SUBORDINATED DEBT. Subordinated Debt shall be defined
as those promissory notes executed by Borrower in favor of Summit Subordinated
Debt Fund II, L.P. and Summit Investors III, L.P. in the original principal
amount of $6,000,000. Provided that no event of default exists or would result
from such payment, Borrower may make regularly scheduled payments of interest
that constitutes Subordinated Debt; furthermore, Borrower may make scheduled or
unscheduled payments of principal under the Subordinated Debt, without the
Bank's prior written consent provided: (1) Borrower provides Bank with written
notification at least five days in advance of Borrower's planned repayment in
part or full of the Subordinated Debt, (2) such payments are done without using
any of the Bank's loans and (3) Borrower is in full compliance of all covenants
prior and post payment(s).
5.8 PARENT AND SUBSIDIARY PROPERTY. Borrower will not transfer any
property to its parent or any affiliate of its parent, except for value
received in the normal course of business as business would be conducted
with an unrelated or unaffiliated entity. In no event shall management fees
or fees for services be paid by Borrower to any such direct or indirect
affiliate without Bank's prior written approval.
5.9 RETIREMENT OF STOCK. Borrower will not acquire or inure any share
of its capital stock for value.
SECTION 6 EVENTS OF DEFAULT
The occurrence of any of the following events ("Events or Default") shall
terminate any obligation on the part of Bank to make or continue the loan and
automatically, unless otherwise provided under the Note, shall make all sums of
interest and principal and any other amounts owing under the Loan immediately
due and payable, without notice of default, presentment or
9.
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demand for payment, protest or notice of nonpayment or dishonor, or any other
notices or demands:
6.1 Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the other Loan Documents;
or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or observance of any
covenant or condition of the Loan Documents; or
6.4 Any guaranty or subordination agreement required hereunder is
breached or becomes ineffective, or any Guarantor or subordinating creditor
dies, disavows or attempts to revoke or terminate such guaranty or
subordination agreement; or
6.5 There is a change in ownership or control of ten percent (10%) or
more of the issued and outstanding stock of Borrower or any Guarantor, or (if
Borrower is a partnership) there is a change in ownership or control of any
general partner's interest.
SECTION 7 MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in
addition to all rights, powers and remedies given to Bank by law against
Borrower or any other person, including but not limited to Bank's rights of
setoff or banker's lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy
shall not preclude the further exercise thereof. No waiver shall be
effective unless it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns or Bank and the permitted successors and assignees of
Borrower, and any assignment by Borrower without Bank's consent shall be null
and void.
7.4 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this Agreement
be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective. In the event of any conflict between the
provisions of this Agreement and the provisions of any note or reimbursement
agreement evidencing any indebtedness hereunder, the provisions of such note
or reimbursement agreement shall prevail.
7.6 INTEGRATION CLAUSE. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower
10.
<PAGE>
regarding the Loan and all prior communications verbal or written between
Borrower and Bank shall be of no further effect or evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings herein are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in writing signed
by all parties hereto.
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original,
but when together shall be one and the same instrument.
SECTION 8 SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods
and addressed to the respective party at its address given with the
signatures at the end of this Agreement and shall be considered to have been
validly given: (a) upon delivery, if delivered personally; (b) upon receipt,
if mailed, first class postage prepaid, with the United States Postal
Service; (c) on the next business day, if sent by overnight courier service
of recognized standing; and (d) upon telephoned confirmation of receipt, if
telecopied.
8.2 The addresses to which notices or demands are to be given may be
changed from time to time by notice delivered as provided above.
11.
<PAGE>
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. CLONTECH CALIFORNIA LABORATORIES, A
CALIFORNIA CORPORATION
/s/ David Jackson /s/ Pam Fong
----------------------------------- -----------------------------------
David M. Jackson Dr. Pamela Fong, O.D.
Vice President Financial Officer
/s/ William W. Sims
-----------------------------------
Mr. William W. Sims
Chief Financial Officer
12.
<PAGE>
UNION
BANK OF
CALIFORNIA
AUTHORIZATION TO OBTAIN CREDIT, GRANT SECURITY,
GUARANTEE OR SUBORDINATE
RECITALS
A. CLONTECH LABORATORIES, INC.
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
duly organized and existing under the laws of CALIFORNIA with its principal
place of business at 1020 E. MEADOW CIRCLE, PALO ALTO CA (the "Business")
desires to obtain present or future credit from, grant security to, or give
guaranties or subordinations to Union Bank of California, N.A. ("Bank").
B. The Business desires that certain person(s) be authorized to act on its
behalf from time to time in obtaining, among other things, such credit from,
granting security to, or giving guaranties or subordinations to, Bank.
NOW, THEREFORE, IT IS RESOLVED THAT:
1. Authorization. Any 2 of the following is/are authorized and directed, in
the name and on behalf of the Business, from time to time, with or without
security, to obtain credit and other financial accommodations from Bank, or
to give guaranties or subordinations to Bank, upon such terms as any such
person(s) shall approve:
PRESIDENT KENNTH FONG, PHD. /s/ Kennth Fong
- ------------------------ ------------------------ ------------------------
Corporate Title Name Signature
TREASURER PAMELA FONG, O.D. /s/ Pamela Fong
- ------------------------ ------------------------ ------------------------
Corporate Title Name Signature
CHIEF FINANCIAL OFFICER WILLIAM W. SIMS /s/ William W. Sims
- ------------------------ ------------------------ ------------------------
Corporate Title Name Signature
- ------------------------ ------------------------ ------------------------
Corporate Title Name Signature
- ------------------------ ------------------------ ------------------------
Corporate Title Name Signature
- ------------------------ ------------------------ ------------------------
Corporate Title Name Signature
2. Scope Of Authority. Without limiting the generality of the authority
granted, each person designated in paragraph 1 above is authorized, from time
to time, in the name and on behalf of the Business, to:
2.1 Incur Indebtedness To Bank. The word "Indebtedness" as used
herein means all debts, obligations and liabilities, including without
limitation obligations and liabilities under guaranties or subordinations,
currently existing or now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising or evidenced, whether direct or
acquired by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and
whether liability is individual or joint with others, all renewals,
extensions and modifications thereof, and all attorneys' fees and costs
incurred in connection with the negotiation, preparation, workout,
collection and enforcement thereof;
2.2 Execute, deliver and endorse with respect to Indebtedness to
Bank, promissory notes, loan agreements, drafts, guaranties, subordinations,
applications and agreements for letters of credit, acceptance agreements,
foreign exchange documentation, applications and agreements pertaining to
the payment and collection of documents, indemnities, waivers, purchase
agreements and other financial undertakings, leases and other documents and
agreements in connection therewith, and all renewals, extensions or
modifications thereof;
2.3 Grant security interests in, pledge, assign, transfer, endorse,
mortgage or hypothecate, and execute security or pledge agreements,
financing statements and other security interest perfection documentation,
mortgages and deeds of trust on, and give trust receipts for, any or all
property of the Business as may be agreed upon by any officer as security
for any or all indebtedness of the Business or any other individual or
entity ("Person"), and grant and execute renewals, extensions or
modifications thereof;
2.4 Sell to, or discount or rediscount with, Bank all negotiable
instruments, including without limitation promissory notes, commercial
paper, drafts, accounts, acceptances, leases, chattel paper, contracts,
documents, instruments or evidences of debt at any time owned, held or drawn
by the Business, and draw, endorse or transfer any of such instruments or
documents on behalf of the Business, guarantee payment or repurchase
thereof, and execute and deliver to Bank all documents and agreements in
connection therewith, and all renewals, extensions or modifications thereof;
2.5 Direct the disposition of the proceeds of any credit extended by
Bank, and deliver to Bank and accept from Bank delivery of any property of
the Business at any time held by Bank.
2.6 Specify in writing to Bank the individuals who are authorized, in
the name of and on behalf of the Business, to request advances under loans
or credit lines made available by Bank to the Business, subject to the terms
thereof.
AUTH.OR LASER (12/97) PAGE 1 OF 2
<PAGE>
3. WRITINGS. Any instruments, documents, agreements, or other writings
executed under or pursuant to these resolutions (collectively, the
"Authorization") may be in such form and contain such terms and conditions as
may be required by Bank in its sole discretion, and execution thereof by any
officer authorized under the Authorization shall be conclusive evidence of
such officer's and the Business's approval of the terms and conditions
thereof.
4. CERTIFICATION. The Secretary or any Assistant Secretary of the Business
is hereby authorized and directed from time to time to certify to Bank a
copy of this Authorization, the names and specimen signatures of the persons
designated in paragraph 1 above, and any modification thereof.
5. RATIFICATION/AMENDMENT. The authority given under this Authorization
shall be retroactive and any and all acts so authorized that are performed
prior to the formal adoption are hereby approved and ratified. In the event
two or more resolutions of this Business are concurrently in effect, the
provisions of each shall be cumulative, unless the latest shall specifically
provide otherwise. The authority given hereby shall remain in full force and
effect, and Bank is authorized and requested to rely and act thereon, until
Bank shall have received at its COMMERCIAL MARKETS GROUP-SAN MATEO OFFICE
a certified copy of a further resolution of the Business amending, rescinding
or revoking the Authorization.
6. REQUESTS FOR CREDIT. Credit may be requested by the Business from Bank in
writing, by telephone, or by other telecommunication method acceptable to
Bank. The Business recognizes and agrees that Bank cannot effectively
determine whether a specific request purportedly made by or on behalf of the
Business is actually authorized or authentic. As it is in the Business's best
Interest that Bank extend credit in response to these forms of request, the
Business assumes all risks regarding the validity, authenticity and due
authorization of any request purporting to be made by or on behalf of the
Business. The Business is hereby authorized and directed to repay any credit
that is extended by Bank pursuant to any request which Bank in good faith
believes to be authorized, or when the proceeds of any credit are deposited
to the account of the Business with Bank, regardless of whether any
individual or entity other than the Business may have authority to draw
against such account.
7. BUSINESS AS PARTNER/JOINT VENTURER, LLC MEMBER OR MANAGER. Nothing in its
organizational documents limits or prohibits the Business from acting as a
general or limited partner of a partnership, a member or manager of a limited
liability company, or joint venturer of a joint venture. Any Person
designated in paragraph 1 of the Authorization is authorized, on behalf of
the Business, in its role as a general or limited partner, a member or
manager, or a joint venturer, to execute, deliver and endorse all
certificates, authorizations and agreements (i) to evidence the Business's
role in and responsibilities to and for such partnership, limited liability
company or joint venture so that Bank may rely thereon, and (ii) to evidence
such partnership's, limited liability company's or joint venture's
obligations and liabilities to Bank.
8. NO LIMITATION BY THIS AUTHORIZATION. Nothing contained in this
Authorization shall limit or modify the authority of any person to act on
behalf of the Business as provided by law, any agreement or authorization
relating to the Business or otherwise.
9. ADDENDA. The Addendum - Foreign Exchange Contracts and Addendum - Letters
of Credit attached hereto are incorporated herein by this reference.
CERTIFICATE OF SECRETARY OF THE BUSINESS
I hereby certify to Union Bank of California, N.A., ("Bank") that the above
Authorization is a true copy of the resolution(s) of CLONTECH LABORATORIES,
INC. a corporation duly organized and existing under the laws of CALIFORNIA
(the "Business") duly adopted on 4/23/98, by the Board of Directors of the
Business and duly entered in the records of the Business, and that the
Authorization is in conformity with applicable law and regulation, the
Articles of Incorporation and the By-Laws of the Business and is now in full
force and effect.
I also certify that the above are the names and genuine specimen signatures
of the officers of the Business authorized in paragraph 1 of the
Authorization.
I agree to notify Bank in writing of any change in any aspect of the
Authorization or of any individual holding any office set forth in this
certificate immediately upon the occurrence of any such change, and to provide
Bank with a copy of the modified resolution(s) and the genuine specimen
signature of any such new officer.
The authority provided for in the Authorization shall remain in full force
and effect, and Bank is authorized and requested to rely and act thereon
until Bank shall receive at its COMMERCIAL MARKETS GROUP-SAN MATEO OFFICE
either a certified copy of a further resolution of this Business's Board of
Directors amending the Authorization, or a certification of a change in the
authorized officer(s).
Dated: September 18, 1998 /s/ Pam Fong
------------------------------
Secretary of CLONTECH
LABORATORIES, INC.
SEAL
(if no seal,
so state)
/s/ William W. Sims
------------------------------
Sr. V.P. Finance & CFO of
CLONTECH LABORATORIES, INC.
*When the Secretary is among those authorized, the President should also sign
this Certificate.
<PAGE>
UNION BANK OF CALIFORNIA
PROMISSORY NOTE
(BASE RATE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrower Name CLONTECH LABORATORIES, INC.
- -------------------------------------------------------------------------------
Borrower Address Office 90161 Loan Number 1494767293 0081-00-0-0000
1020 EAST MEADOW CIRCLE -------------------------------------------------------
PALO ALTO, CA 94303 Maturity Date JUNE 1, 1999 Amount $4,000,000.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$4,000,000.00 Date SEPTEMBER 4, 1998
- -------------- ------------------
FOR VALUE RECEIVED, on JUNE 1, 1999, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated
below, the principal sum of FOUR MILLION AND NO/100 Dollars ($4,000,000.00),
or so much thereof as is disbursed, together with interest on the balance of
such principal from time to time outstanding, at the per annum rate or rates
and at the times set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest on the FIRST day of each MONTH
(commencing OCTOBER 1, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year
of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $1,000,000.00 shall bear interest at a
rate, based on an index selected by Debtor, which is 2.00% per annum in
excess of Bank's LIBOR-Rate for the Interest Period selected by Debtor,
acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and
on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time, on
any Business Day and advising that officer of the selected index, the
Interest Period and the Origination Date selected (which Origination
Date, for a Base Interest Rate Loan based on the LIBOR-Rate, shall follow
the date of such selection by no more than two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the Index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds notwithstanding
any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum equal to the Reference Rate, which rate shall vary as and
when the Reference Rate changes.
At any time prior to the maturity of this note, subject to the provisions
of paragraph 4, below, of this note, Debtor may borrow, repay and
reborrow hereon so long as the total outstanding at any one time does not
exceed the principal amount of this note. Debtor shall pay all amounts
due under this note in lawful money of the United States at Bank's SAN
MATEO COMMERCIAL BANKING Office, or such other office as may be
designated by Bank, from time to time.
-1-
<PAGE>
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option
of Bank, and, to the extent permitted by law, interest shall be payable on
the outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b,
above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value of
the product of: (i) the difference (but not less than zero) between (a)
the Base Interest Rate applicable to the principal amount which is being
prepaid, and (b) the return which Bank could obtain if it used the amount
of such prepayment of principal to purchase at bid price regularly quoted
securities issued by the United States having a maturity date most
closely coinciding with the relevant Base Rate Maturity Date and such
securities were held by Bank until the relevant Base Rate Maturity Date
("Yield Rate"); (ii) a fraction, the numerator of which is the number of
days in the period between the date of prepayment and the relevant Base
Rate Maturity Date and the denominator of which is 360; and (iii) the
amount of the principal so prepaid (except in the event that principal
payments are required and have been made as scheduled under the terms of
the Base Interest Rate Loan being prepaid, then an amount equal to the
lesser of (A) the amount prepaid or (B) 50% of the sum of (1) the amount
prepaid and (2) the amount of principal scheduled under the terms of the
Base Interest Rate Loan being prepaid to be outstanding at the relevant
Base Rate Maturity Date). Present value under this note is determined by
discounting the above product to present value using the Yield Rate as
the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under this prepayment
formula exceed the interest that Bank would have received if no
prepayment had occurred. All prepayments shall include payment of accrued
interest on the principal amount so prepaid and shall be applied to
payment of interest before application to principal. A determination by
Bank as to the prepayment fee amount, if any, shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach,
misrepresentation or other default by Debtor, any guarantor, co-maker,
endorser, or any person or entity other than Debtor providing security for
this note (hereinafter individually and collectively referred to as the
"Obligor") under any security agreement, guaranty or other agreement between
Bank and any Obligor; (c) the insolvency of any Obligor or the failure of any
Obligor generally to pay such Obligor's debts as such debts become due; (d)
the commencement as to any Obligor of any voluntary or involuntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief; (e) the assignment by any
Obligor for the benefit of such Obligor's creditors; (f) the appointment, or
commencement of any proceeding for the appointment of a receiver, trustee,
custodian or similar official for all or substantially all of any Obligor's
property; (g) the commencement of any proceeding for the dissolution or
liquidation of any Obligor; (h) the termination of existence or death of any
Obligor; (i) the revocation of any guaranty or subordination agreement given
in connection with this note; (j) the failure of any Obligor to comply with
any order, judgement, injunction, decree, writ or demand of any court or
other public authority; (k) the filing or recording against any Obligor, or
the property of any Obligor, of any notice of levy, notice to withhold, or
other legal process for taxes other than property taxes; (l) the default by any
Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money; (m) the issuance against any Obligor, or
the property of any Obligor, of any writ of attachment, execution, or other
judicial lien; or (n) the deterioration of the financial condition of any
Obligor which results in Bank deeming itself, in good faith, insecure. Upon
the occurrence of any such default, Bank, in its discretion, may cease to
advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of any event of
default under d, e, f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note
are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note, for the
maximum period of time and the full extent permitted by law, (a) waive
diligence, presentment, demand, notice of nonpayment, protest, notice of
protest, and notice of every kind; (b) waive the right to assert the defense
of any statute of limitations to any debt or obligation hereunder; and (c)
consent to renewals and extensions of time for the payment of any amounts due
under this note. If this note is signed by more than one party, the term
"Debtor" includes each of the undersigned and any successors in interest
thereof; all of whose liability shall be joint and several. Any married
person who signs this note agrees that recourse may be had against the
separate property of that person for any obligations hereunder. The receipt
of any check or other item of payment by Bank, at its option, shall not be
considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the
credit of such payment based upon Bank's schedule of funds availability, and
interest under this note shall accrue until the funds are deemed collected.
In any action brought under or arising out of this note, Debtor and any
Obligor, including their successors and assigns, hereby consent to the
-2-
<PAGE>
jurisdiction of any competent court within the State of California, as
provided in any alternative dispute resolution agreement executed between
Debtor and Bank, and consent to service of process by any means authorized
by said state's law. The term "Bank" includes, without limitation, any holder
of this note. This note shall be construed in accordance with and governed by
the laws of the State of California. This note hereby incorporates any
alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Base Interest Rate" means a rate of interest
based on the LIBOR-Rate. "Base Interest Rate Loan" means amounts outstanding
under this note that bear interest at a Base Interest Rate. "Base Rate
Maturity Date" means the last day of the Interest Period with respect to
principal outstanding under a Base Interest Rate Loan. "Business Day" means a
day on which Bank is open for business for the funding of corporate loans,
and, with respect to the rate of interest based on the LIBOR Rate, on which
dealings in U.S. dollar deposits outside of the United States may be carried
on by Bank. "Interest Period" means with respect to funds bearing interest at
a rate based on the LIBOR Rate, any calendar period of one, three, six, nine
or twelve months. In determining an Interest Period, a month means a period
that starts on one Business Day in a month and ends on and includes the day
preceding the numerically corresponding day in the next month. For any month
in which there is no such numerically corresponding day, then as to that
month, such day shall be deemed to be the last calendar day of such month.
Any Interest Period which would otherwise end on a non-Business Day shall end
on the next succeeding Business Day unless that is the first day of a month,
in which event such Interest Period shall end on the next preceding Business
Day. "LIBOR Rate" means a per annum rate of interest (rounded upward, if
necessary, to the nearest 1/100 of 1%) at which dollar deposits, in
immediately available funds and in lawful money of the United States would be
offered to Bank, outside of the United States, for a term coinciding with the
Interest Period selected by Debtor and for an amount equal to the amount of
principal covered by Debtor's interest rate selection, plus Bank's costs,
including the costs, if any, of reserve requirements. "Origination Date"
means the first day of the Interest Period. "Reference Rate" means the rate
announced by Bank from time to time at its corporate headquarters as its
Reference Rate. The Reference Rate is an index rate determined by Bank from
time to time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
CLONTECH LABORATORIES, INC.
- ---------------------------------------
By /s/ William W. Sims /s/ Pam Fong
-----------------------------------
Title Sr VP Finance & CFO Treasurer
--------------------------------
-3-
<PAGE>
UNION
BANK OF
CALIFORNIA
PROMISSORY NOTE
(BASE RATE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrower Name CLONTECH LABORATORIES, INC.
- -------------------------------------------------------------------------------
Borrower Address Office 90161 Loan Number 1494767293 0082-00-0-000
1020 EAST MEADOW CIRCLE -------------------------------------------------------
PALO ALTO, CA 94303 Maturity Date JUNE 30, 2004 Amount $2,000,000.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$2,000,000.00 Date SEPTEMBER 4, 1998
- -------------- ------------------
FOR VALUE RECEIVED, on JUNE 30, 2004, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated
below, the principal sum of TWO MILLION AND NO/100 Dollars ($2,000,000.00), or
so much thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at the per annum rate or rates and at
the times set forth below.
1. PAYMENTS.
PRINCIPAL PAYMENTS. Principal shall be payable in 60 equal consecutive
monthly installments, each installment in an amount sufficient to fully
amortize the principal balance by the final maturity date, beginning JULY 31,
1999, and continuing on the LAST Day of each consecutive month. On JUNE 30,
2004, all principal and interest then unpaid shall be due and payable. The
availability under this note shall be reduced the same day and in the same
amount as each scheduled principal payment.
INTEREST PAYMENTS. Debtor shall pay interest on the LAST day of each MONTH
(commencing SEPTEMBER 30, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year
of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $100,000.00 shall bear interest at a
rate, based on an index selected by Debtor, which is 2.00% per annum in
excess of: (i) Bank's Adjusted Treasuries Rate for the Interest Period
selected by Debtor, or (ii) Bank's LIBOR-Rate for the Interest Period
selected by Debtor, in each case acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and
on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time, on
any Business Day and advising that officer of the selected index, the
Interest Period and the Origination Date selected (which Origination
Date, for a Base Interest Rate Loan based on the LIBOR-Rate, shall follow
the date of such selection by no more than two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds notwithstanding
any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum equal to the Reference Rate, which rate shall vary as and
when the Reference Rate changes.
At any time prior to JUNE 30, 1999, subject to the provisions of paragraph
4, below, of this note, Debtor may borrow, repay Debtor shall pay all
amounts due under this note in lawful money of the United States at Bank's
SAN MATEO COMMERCIAL BANKING Office, or such other office as may be
designated by Bank, from time to time.
<PAGE>
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option
of Bank, and, to the extent permitted by law, interest shall be payable on
the outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b,
above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value of
the product of: (i) the difference (but not less than zero) between (a)
the Base Interest Rate applicable to the principal amount which is being
prepaid, and (b) the return which Bank could obtain if it used the amount
of such prepayment of principal to purchase at bid price regularly quoted
securities issued by the United States having a maturity relevant Base
Rate Maturity Date and such securities were held by Bank until the
relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the
numerator of which is the number of days in the period between the date
of prepayment and the relevant Base Rate Maturity Date and the
denominator of which is 360; and (iii) the amount of the principal so
prepaid (except in the event that principal payments are required and
have been made as scheduled under the terms of the Base Interest Rate
Loan being prepaid, then an amount equal to the lesser of (A) the amount
prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the
amount of principal scheduled under the terms of the Base Interest Rate
Loan being prepaid to be outstanding at the relevant Base Rate Maturity
Date). Present value under this note is determined by discounting the
above product to present value using the Yield Rate as the annual
discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under this prepayment
formula exceed the interest that Bank would have received if no
prepayment had occurred. All prepayments shall include payment of accrued
interest on the principal amount so prepaid and shall be applied to
payment of interest before application to principal. A determination by
Bank as to the prepayment fee amount, if any, shall be conclusive. In the
event of partial prepayment, such prepayments shall be applied to principal
payments in the inverse order of their maturity.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach,
misrepresentation or other default by Debtor, any guarantor, co-maker,
endorser, or any person or entity other than Debtor providing security for
this note (hereinafter individually and collectively referred to as the
"Obligor") under any security agreement, guaranty or other agreement between
Bank and any Obligor; (c) the insolvency of any Obligor or the failure of any
Obligor generally to pay such Obligor's debts as such debts become due; (d)
the commencement as to any Obligor of any voluntary or involuntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief; (e) the assignment by any
Obligor for the benefit of such Obligor's creditors; (f) the appointment, or
commencement of any proceeding for the appointment of a receiver, trustee,
custodian or similar official for all or substantially all of any Obligor's
property; (g) the commencement of any proceeding for the dissolution or
liquidation of any Obligor; (h) the termination of existence or death of any
Obligor; (i) the revocation of any guaranty or subordination agreement given
in connection with this note; (j) the failure of any Obligor to comply with
any order, judgement, injunction, decree, writ or demand of any court or
other public authority; (k) the filing or recording against any Obligor, or
the property of any Obligor, of any notice of levy, notice to withhold, or
other legal process for taxes other than property taxes; (l) the default by any
Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money; (m) the issuance against any Obligor, or
the property of any Obligor, of any writ of attachment, execution, or other
judicial lien; or (n) the deterioration of the financial condition of any
Obligor which results in Bank deeming itself, in good faith, insecure. Upon
the occurrence of any such default, Bank, in its discretion, may cease to
advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of any event of
default under d, e, f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note
are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note, for the
maximum period of time and the full extent permitted by law, (a) waive
diligence, presentment, demand, notice of nonpayment, protest, notice of
protest, and notice of every kind; (b) waive the right to assert the defense
of any statute of limitations to any debt or obligation hereunder; and (c)
consent to renewals and extensions of time for the payment of any amounts due
under this note. If this note is signed by more than one party, the term
"Debtor" includes each of the undersigned and any successors in interest
thereof; all of whose liability shall be joint and several. Any married
person who signs this note agrees that recourse may be had against the
separate property of that person for any obligations hereunder. The receipt
of any check or other item of payment by Bank, at its option, shall not be
considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the
credit of such payment based upon Bank's schedule of funds availability, and
interest under this note shall accrue until the funds are deemed collected.
In any action brought under or arising out of this note, Debtor and any
Obligor, including their successors and assigns, hereby consent to the
jurisdiction of any competent court within the State of California, as
provided in any alternative dispute resolution agreement executed between
Debtor and Bank, and consent to service of process by any means authorized by
said state's law. The term "Bank" includes, without limitation, any holder of
this note. This note shall be construed in accordance with and governed by
the laws of the State of California. This note hereby incorporates any
alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
<PAGE>
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Adjusted Treasuries Rate" means a per annum
rate of interest based on the percentage yield on U.S. Treasury securities,
plus a margin, set by Bank in its discretion, related to the general cost of
corporate borrowing for a term comparable to the term of Bank's loan to Debtor,
plus Bank's costs, including the costs, if any, of reserve requirements and
FDIC assessments. "Base Interest Rate" means a rate of interest based on
either the Adjusted Treasuries Rate or the LIBOR-Rate. "Base Interest Rate
Loan" means amounts outstanding under this note that bear interest at a Base
Interest Rate. "Base Rate Maturity Date" means the last day of the Interest
Period with respect to principal outstanding under a Base Interest Rate Loan.
"Business Day" means a day on which Bank is open for business for the funding
of corporate loans, and, with respect to the rate of interest based on the
LIBOR-Rate, on which dealings in U.S. dollar deposits outside of the United
States may be carried on by Bank. "Interest Period" means (i) with respect to
funds bearing interest at a rate based on the Adjusted Treasuries Rate, any
period of not less than 30 nor more than 270 days, or (ii) with respect to
funds bearing interest at a rate based on the LIBOR-Rate, any calendar period
of one, three, six, nine or twelve months. In determining an Interest Period,
a month means a period that starts on one Business Day in a month and ends on
and includes the day preceding the numerically corresponding day in the next
month. For any month in which there is no such numerically corresponding day,
then as to that month, such day shall be deemed to be the last calendar day
of such month. Any Interest Period which would otherwise end on a
non-Business Day shall end on the next succeeding Business Day unless that is
the first day of a month, in which event such Interest Period shall end on
the next preceding Business Day. "LIBOR Rate" means a per annum rate of
interest (rounded upward, if necessary, to the nearest 1/100 of 1%) at which
dollar deposits, in immediately available funds and in lawful money of the
United States would be offered to Bank, outside of the United States, for a
term coinciding with the Interest Period selected by Debtor and for an amount
equal to the amount of principal covered by Debtor's interest rate selection,
plus Bank's cost, including the costs, if any, of reserve requirements.
"Origination Date" means the first day of the Interest Period. "Reference
Rate" means the rate announced by Bank from time to time at its corporate
headquarters as its Reference Rate. The Reference Rate is an index rate
determined by Bank from time to time as a means of pricing certain extensions
of credit and is neither directly tied to any external rate of interest or
index nor necessarily the lowest rate of interest charged by Bank at any
given time.
CLONTECH LABORATORIES, INC.
- ---------------------------------------
By /s/ William W. Sims /s/ Pam Fong
-----------------------------------
Title Sr VP Finance & CFO Treasurer
--------------------------------
<PAGE>
UNION
BANK OF
CALIFORNIA
PROMISSORY NOTE
(BASE RATE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrower Name CLONTECH LABORATORIES, INC.
- -------------------------------------------------------------------------------
Borrower Address Office 90161 Loan Number 1494767293 0080-00-0-0000
1020 EAST MEADOW CIRCLE -------------------------------------------------------
PALO ALTO, CA 94303 Maturity Date JUNE 30, 2005 Amount $2,500,000.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$2,500,000.00 Date SEPTEMBER 4, 1998
- -------------- ------------------
FOR VALUE RECEIVED, on JUNE 30, 2005, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated
below, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100
Dollars ($2,500,000.00), or so much thereof as is disbursed, together with
interest on the balance of such principal from time to time outstanding, at
the per annum rate or rates and at the times set forth below.
1. PAYMENTS.
PRINCIPAL PAYMENTS. Debtor shall pay principal in installments of THIRTY
THOUSAND FOUR HUNDRED EIGHTY EIGHT AND NO/100 Dollars ($30,488.00), each on
the LAST day of each MONTH, commencing SEPTEMBER 30, 1998. The availability
under this note shall be reduced on the same day and in the same amount as
each scheduled principal payment.
INTEREST PAYMENTS. Debtor shall pay interest on the LAST day of each MONTH
(commencing SEPTEMBER 30, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year
of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $1,000,000.00 shall bear interest at a
rate, based on an index selected by Debtor, which is 2.25% per annum in
excess of: (i) Bank's Adjusted Treasuries Rate for the Interest Period
selected by Debtor, or (ii) Bank's LIBOR-Rate for the Interest Period
selected by Debtor, in each case acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and
on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time, on
any Business Day and advising that officer of the selected Index, the
Interest Period and the Origination Date selected (which Origination
Date, for a Base Interest Rate Loan based on the LIBOR-Rate, shall follow
the date of such selection by no more than two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the Index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds notwithstanding
any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum equal to the Reference Rate, which rate shall vary as and
when the Reference Rate changes.
Debtor shall pay all amounts due under this note in lawful money of the
United States at Bank's SAN MATEO COMMERCIAL BANKING Office, or such
other office as may be designated by Bank, from time to time.
<PAGE>
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option
of Bank, and, to the extent permitted by law, interest shall be payable on
the outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b,
above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value of
the product of: (i) the difference (but not less than zero) between (a)
the Base Interest Rate applicable to the principal amount which is being
prepaid, and (b) the return which Bank could obtain if it used the amount
of such prepayment of principal to purchase at bid price regularly quoted
securities issued by the United States having a maturity relevant Base
Rate Maturity Date and such securities were held by Bank until the
relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the
numerator of which is the number of days in the period between the date
of prepayment and the relevant Base Rate Maturity Date and the
denominator of which is 360; and (iii) the amount of the principal so
prepaid (except in the event that principal payments are required and
have been made as scheduled under the terms of the Base Interest Rate
Loan being prepaid, then an amount equal to the lesser of (A) the amount
prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the
amount of principal scheduled under the terms of the Base Interest Rate
Loan being prepaid to be outstanding at the relevant Base Rate Maturity
Date). Present value under this note is determined by discounting the
above product to present value using the Yield Rate as the annual
discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under this prepayment
formula exceed the interest that Bank would have received if no
prepayment had occurred. All prepayments shall include payment of accrued
interest on the principal amount so prepaid and shall be applied to
payment of interest before application to principal. A determination by
Bank as to the prepayment fee amount, if any, shall be conclusive. In the
event of partial prepayment, such prepayments shall be applied to principal
payments in the inverse order of their maturity.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach,
misrepresentation or other default by Debtor, any guarantor, co-maker,
endorser, or any person or entity other than Debtor providing security for
this note (hereinafter individually and collectively referred to as the
"Obligor") under any security agreement, guaranty or other agreement between
Bank and any Obligor; (c) the insolvency of any Obligor or the failure of any
Obligor generally to pay such Obligor's debts as such debts become due; (d)
the commencement as to any Obligor of any voluntary or involuntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief; (e) the assignment by any
Obligor for the benefit of such Obligor's creditors; (f) the appointment, or
commencement of any proceeding for the appointment of a receiver, trustee,
custodian or similar official for all or substantially all of Obligor's
property; (g) the commencement of any proceeding for the dissolution or
liquidation of any Obligor; (h) the termination of existence or death of any
Obligor; (i) the revocation of any guaranty or subordination agreement given
in connection with this note; (j) the failure of any Obligor to comply with
any order, judgement, injunction, decree, writ or demand of any court or
other public authority; (k) the filing or recording against any Obligor, or
the property of any Obligor, of any notice of levy, notice to withhold, or
other legal process for taxes other than property taxes; (l) the default by any
Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money; (m) the issuance against any Obligor, or
the property of any Obligor, of any writ of attachment, execution, or other
judicial lien; or (n) the deterioration of the financial condition of any
Obligor which results in Bank deeming itself, in good faith, insecure. Upon
the occurrence of any such default, Bank, in its discretion, may cease to
advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of
default under d, e, f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note
are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note, for the
maximum period of time and the full extent permitted by law, (a) waive
diligence, presentment, demand, notice of nonpayment, protest, notice of
protest, and notice of every kind; (b) waive the right to assert the defense
of any statute of limitations to any debt or obligation hereunder; and (c)
consent to renewals and extensions of time for the payment of any amounts due
under this note. If this note is signed by more than one party, the term
"Debtor" includes each of the undersigned and any successors in interest
thereof; all of whose liability shall be joint and several. Any married
person who signs this note agrees that recourse may be had against the
separate property of that person for any obligations hereunder. The receipt
of any check or other item of payment by Bank, at its option, shall not be
considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the
credit of such payment based upon Bank's schedule of funds availability, and
interest under this note shall accrue until the funds are deemed collected.
In any action brought under or arising out of this note, Debtor and any
Obligor, including their successors and assigns, hereby consent to the
jurisdiction of any competent court within the State of California, as
provided in any alternative dispute resolution agreement executed between
Debtor and Bank, and consent to service of process by any means authorized by
said state's law. The term "Bank" includes, without limitation, any holder of
this note. This note shall be construed in accordance with and governed by
the laws of the State of California. This note hereby incorporates any
alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
<PAGE>
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Adjusted Treasuries Rate" means a per annum
rate of interest based on the percentage yield on U.S. Treasury securities,
plus a margin, set by Bank in its discretion, related to the general cost of
corporate borrowing for a term comparable to the term of Bank's loan to
Debtor, plus Bank's costs, including the costs, if any, of reserve
requirements and FDIC assessments. "Base Interest Rate" means a rate of
interest based on either the Adjusted Treasuries Rate or the LIBOR-Rate.
"Base Interest Rate Loan" means amounts outstanding under this note that bear
interest at a Base Interest Rate. "Base Rate Maturity Date" means the last
day of the Interest Period with respect to principal outstanding under a Base
Interest Rate Loan. "Business Day" means a day on which Bank is open for
business for the funding of corporate loans, and, with respect to the rate of
interest based on the LIBOR-Rate, on which dealings in U.S. dollar deposits
outside of the United States may be carried on by Bank. "Interest Period"
means (i) with respect to funds bearing interest at a rate based on the
Adjusted Treasuries Rate, any period of not less than 30 nor more than 270
days, or (ii) with respect to funds bearing interest at a rate based on the
LIBOR-Rate, any calendar period of one, three, six, nine or twelve months. In
determining an Interest Period, a month means a period that starts on one
Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there
is no such numerically corresponding day, then as to that month, such day
shall be deemed to be the last calendar day of such month. Any Interest
Period which would otherwise end on a non-Business Day shall end on the next
succeeding Business Day unless that is the first day of a month, in which
event such Interest Period shall end on the next preceding Business Day.
"LIBOR Rate" means a per annum rate of interest (rounded upward, if
necessary, to the nearest 1/100 of 1%) at which dollar deposits, in
immediately available funds and in lawful money of the United States would be
offered to Bank, outside of the United States, for a term coinciding with the
Interest Period selected by Debtor and for an amount equal to the amount of
principal covered by Debtor's interest rate selection, plus Bank's costs,
including the cost, if any, of reserve requirements. "Origination Date" means
the first day of the Interest Period. "Reference Rate" means the rate
announced by Bank from time to time at its corporate headquarters as its
Reference Rate. The Reference Rate is an index rate determined by Bank from
time to time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
CLONTECH LABORATORIES, INC.
- ---------------------------------------
By /s/ William W. Sims /s/ Pam Fong
-----------------------------------
Title Sr VP Finance & CFO Treasurer
--------------------------------
<PAGE>
UNION
BANK OF
CALIFORNIA
PROMISSORY NOTE
(BASE RATE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrower Name CLONTECH LABORATORIES, INC.
- -------------------------------------------------------------------------------
Borrower Address Office 90161 Loan Number 1494767293 0083-00-0-000
1020 EAST MEADOW CIRCLE -------------------------------------------------------
PALO ALTO, CA 94303 Maturity Date DECEMBER 31, 2002 Amount $1,547,619.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$1,547,619.00 Date SEPTEMBER 4, 1998
- -------------- ------------------
FOR VALUE RECEIVED, on DECEMBER 31, 2002, the undersigned ("Debtor") promises
to pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated
below, the principal sum of ONE MILLION FIVE HUNDRED FORTY SEVEN THOUSAND SIX
HUNDRED NINETEEN AND NO/100 Dollars ($1,547,619.00), or so much thereof as is
disbursed, together with interest on the balance of such principal from time
to time outstanding, at the per annum rate or rates and at the times set forth
below.
1. PAYMENTS.
PRINCIPAL PAYMENTS. Debtor shall pay principal in installments of TWENTY
NINE THOUSAND SEVEN HUNDRED SIXTY ONE AND 90/100 Dollars ($29,761.00) each
on the LAST day of each MONTH, commencing SEPTEMBER 30, 1998. The availability
under this note shall be reduced on the same day and in the same amount as each
scheduled principal payment.
INTEREST PAYMENTS. Debtor shall pay interest on the LAST day of each MONTH
(commencing SEPTEMBER 30, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year
of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $1,000,000.00 shall bear interest at a
rate, based on an index selected by Debtor, which is 2.25% per annum in
excess of: (i) Bank's Adjusted Treasuries Rate for the Interest Period
selected by Debtor, or (ii) Bank's LIBOR-Rate for the Interest Period
selected by Debtor, in each case acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and
on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time, on
any Business Day and advising that officer of the selected Index, the
Interest Period and the Origination Date selected (which Origination
Date, for a Base Interest Rate Loan based on the LIBOR-Rate, shall follow
the date of such selection by no more than two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the Index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds notwithstanding
any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum equal to the Reference Rate, which rate shall vary as and
when the Reference Rate changes.
Debtor shall pay all amounts due under this note in lawful money of the
United States at Bank's SAN MATEO COMMERCIAL BANKING Office, or such
other office as may be designated by Bank, from time to time.
<PAGE>
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option
of Bank, and, to the extent permitted by law, interest shall be payable on
the outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b,
above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value of
the product of: (i) the difference (but not less than zero) between (a)
the Base Interest Rate applicable to the principal amount which is being
prepaid, and (b) the return which Bank could obtain if it used the amount
of such prepayment of principal to purchase at bid price regularly quoted
securities issued by the United States having a maturity relevant Base
Rate Maturity Date and such securities were held by Bank until the
relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the
numerator of which is the number of days in the period between the date
of prepayment and the relevant Base Rate Maturity Date and the
denominator of which is 360; and (iii) the amount of the principal so
prepaid (except in the event that principal payments are required and
have been made as scheduled under the terms of the Base Interest Rate
Loan being prepaid, then an amount equal to the lesser of (A) the amount
prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the
amount of principal scheduled under the terms of the Base Interest Rate
Loan being prepaid to be outstanding at the relevant Base Rate Maturity
Date). Present value under this note is determined by discounting the
above product to present value using the Yield Rate as the annual
discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under this prepayment
formula exceed the interest that Bank would have received if no
prepayment had occurred. All prepayments shall include payment of accrued
interest on the principal amount so prepaid and shall be applied to
payment of interest before application to principal. A determination by
Bank as to the prepayment fee amount, if any, shall be conclusive. In the
event of partial prepayment, such prepayments shall be applied to principal
payments in the inverse order of their maturity.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach,
misrepresentation or other default by Debtor, any guarantor, co-maker,
endorser, or any person or entity other than Debtor providing security for
this note (hereinafter individually and collectively referred to as the
"Obligor") under any security agreement, guaranty or other agreement between
Bank and any Obligor; (c) the insolvency of any Obligor or the failure of any
Obligor generally to pay such Obligor's debts as such debts become due; (d)
the commencement as to any Obligor of any voluntary or involuntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief; (e) the assignment by any
Obligor for the benefit of such Obligor's creditors; (f) the appointment, or
commencement of any proceeding for the appointment of a receiver, trustee,
custodian or similar official for all or substantially all of any Obligor's
property; (g) the commencement of any proceeding for the dissolution or
liquidation of any Obligor; (h) the termination of existence or death of any
Obligor; (i) the revocation of any guaranty or subordination agreement given
in connection with this note; (j) the failure of any Obligor to comply with
any order, judgement, injunction, decree, writ or demand of any court or
other public authority; (k) the filing or recording against any Obligor, or
the property of any Obligor, of any notice of levy, notice to withhold, or
other legal process for taxes other than property taxes; (l) the default by any
Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money; (m) the issuance against any Obligor, or
the property of any Obligor, of any writ of attachment, execution, or other
judicial lien; or (n) the deterioration of the financial condition of any
Obligor which results in Bank deeming itself, in good faith, insecure. Upon
the occurrence of any such default, Bank, in its discretion, may cease to
advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of
default under d, e, f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note
are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note, for the
maximum period of time and the full extent permitted by law, (a) waive
diligence, presentment, demand, notice of nonpayment, protest, notice of
protest, and notice of every kind; (b) waive the right to assert the defense
of any statute of limitations to any debt or obligation hereunder; and (c)
consent to renewals and extensions of time for the payment of any amounts due
under this note. If this note is signed by more than one party, the term
"Debtor" includes each of the undersigned and any successors in interest
thereof; all of whose liability shall be joint and several. Any married
person who signs this note agrees that recourse may be had against the
separate property of that person for any obligations hereunder. The receipt
of any check or other item of payment by Bank, at its option, shall not be
considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the
credit of such payment based upon Bank's schedule of funds availability, and
interest under this note shall accrue until the funds are deemed collected.
In any action brought under or arising out of this note, Debtor and any
Obligor, including their successors and assigns, hereby consent to the
jurisdiction of any competent court within the State of California, as
provided in any alternative dispute resolution agreement executed between
Debtor and Bank, and consent to service of process by any means authorized by
said state's law. The term "Bank" includes, without limitation, any holder of
this note. This note shall be construed in accordance with and governed by
the laws of the State of California. This note hereby incorporates any
alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
<PAGE>
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Adjusted Treasuries Rate" means a per annum
rate of interest based on the percentage of yield on U.S. Treasury
securities, plus a margin, set by Bank in its discretion, related to the
general cost of corporate borrowing for a term comparable to the term of
Bank's loan to Debtor, plus Bank's costs, including the costs, if any, of
reserve requirements and FDIC assessments. "Base Interest Rate" means a rate
of interest based on either the Adjusted Treasuries Rate or the LIBOR-Rate.
"Base Interest Rate Loan" means amounts outstanding under this note that bear
interest at a Base Interest Rate. "Base Rate Maturity Date" means the last
day of the Interest Period with respect to principal outstanding under a Base
Interest Rate Loan. "Business Day" means a day on which Bank is open for
business for the funding of corporate loans, and, with respect to the rate of
interest based on the LIBOR-Rate, on which dealings in U.S. dollar deposits
outside of the United States may be carried on by Bank. "Interest Period"
means (i) with respect to funds bearing interest at a rate based on the
Adjusted Treasuries rate, any period of not less than 30 nor more than 270
days, or (ii) with respect to funds bearing interest at a rate based on the
LIBOR-Rate, any calendar period of one, three, six, nine or twelve months. In
determining an Interest Period, a month means a period that starts on one
Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there
is no such numerically corresponding day, then as to that month, such day
shall be deemed to be the last calendar day of such month. Any Interest
Period which would otherwise end on a non-Business Day shall end on the next
succeeding Business Day unless that is the first day of a month, in which
event such Interest Period shall end on the next preceding Business Day.
"LIBOR Rate" means a per annum rate of interest (rounded upward, if
necessary, to the nearest 1/100 of 1%) at which dollar deposits, in
immediately available funds and in lawful money of the United States would be
offered to Bank, outside of the United States, for a term coinciding with the
Interest Period selected by Debtor and for an amount equal to the amount of
principal covered by Debtor's interest rate selection, plus Bank's costs,
including the cost, if any, of reserve requirements. "Origination Date" means
the first day of the Interest Period. "Reference Rate" means the rate
announced by Bank from time to time at its corporate headquarters as its
Reference Rate. The Reference Rate is an index rate determined by Bank from
time to time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
CLONTECH LABORATORIES, INC.
- ---------------------------------------
By /s/ William W. Sims /s/ Pam Fong
-----------------------------------
Title Sr VP Finance & CFO Treasurer
--------------------------------
<PAGE>
LEASE
OF
1020 EAST MEADOW CIRCLE
PALO ALTO, CALIFORNIA
BY AND BETWEEN
CALIFORNIA PACIFIC COMMERCIAL CORPORATION,
A CALIFORNIA CORPORATION, LANDLORD
AND
CLONTECH LABORATORIES, INC.
A CALIFORNIA CORPORATION, TENANT
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Description. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . 1
2. TERM AND DELIVERY OF POSSESSION . . . . . . . . . . . . . . . . . . . . . 2
2.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Early Entry. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Options to Renew . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Option Not Assignable. . . . . . . . . . . . . . . . . . . . . . . 3
3. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Manner of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Late Payment Charge. . . . . . . . . . . . . . . . . . . . . . . . 4
4. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Tenant's Personal Property . . . . . . . . . . . . . . . . . . . . 5
5.2 Real Property Taxes. . . . . . . . . . . . . . . . . . . . . . . . 5
6. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Permitted Uses . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Restrictions on Use. . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Reportable Uses Require Consent. . . . . . . . . . . . . . 7
(b) Duty to Inform . . . . . . . . . . . . . . . . . . . . . . 8
(c) Indemnification by Tenant. . . . . . . . . . . . . . . . . 8
(d) Indemnification by Landlord. . . . . . . . . . . . . . . . 9
7. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Landlord's Obligations . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Tenant's Obligations . . . . . . . . . . . . . . . . . . . . . . .10
7.3 Maintenance of Outside Areas . . . . . . . . . . . . . . . . . . .10
</TABLE>
<PAGE>
INDEX
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
8. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
8.1 Landlord's Consent Required. . . . . . . . . . . . . . . . . . . .11
8.2 Plans and Permits. . . . . . . . . . . . . . . . . . . . . . . . .11
8.3 Construction Work Done by Tenant . . . . . . . . . . . . . . . . .11
8.4 Roof Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . .12
8.5 Title to Alterations . . . . . . . . . . . . . . . . . . . . . . .12
8.6 Removal of Alterations . . . . . . . . . . . . . . . . . . . . . .12
9. MECHANICS' LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10. UTILITIES; SECURITY SERVICES. . . . . . . . . . . . . . . . . . . . . . .13
11. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
11.1 Tenant Indemnification of Landlord . . . . . . . . . . . . . . . .13
11.2 Landlord Indemnification of Tenant . . . . . . . . . . . . . . . .13
12. WAIVER OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
13. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
13.1 Tenant's Liability Insurance . . . . . . . . . . . . . . . . . . .14
13.2 Landlord's Liability Insurance . . . . . . . . . . . . . . . . . .14
13.3 Property Insurance . . . . . . . . . . . . . . . . . . . . . . . .15
13.4 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
13.5 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . .15
13.6 Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . . .16
13.7 No Limitation of Liability . . . . . . . . . . . . . . . . . . . .16
14. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . .16
14.1 Partial Damage-Insured . . . . . . . . . . . . . . . . . . . . . .16
14.2 Partial Damage-Uninsured . . . . . . . . . . . . . . . . . . . . .16
14.3 Total Destruction. . . . . . . . . . . . . . . . . . . . . . . . .17
14.4 Damage Near End of Term. . . . . . . . . . . . . . . . . . . . . .17
14.5 Abatement of Rent. . . . . . . . . . . . . . . . . . . . . . . . .17
14.6 Tenant's Property. . . . . . . . . . . . . . . . . . . . . . . . .18
14.7 Notice of Damage . . . . . . . . . . . . . . . . . . . . . . . . .18
14.8 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . .18
14.9 Hazardous Substance Conditions . . . . . . . . . . . . . . . . . .18
14.10 Waiver of Statute. . . . . . . . . . . . . . . . . . . . . . . . .19
</TABLE>
ii.
<PAGE>
INDEX
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
15. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
15.1 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . .19
15.2 Total Taking . . . . . . . . . . . . . . . . . . . . . . . . . . .19
15.3 Distribution of Award. . . . . . . . . . . . . . . . . . . . . . .19
15.4 Sale Under Threat of Condemnation. . . . . . . . . . . . . . . . .19
15.5 Waiver of Statutes . . . . . . . . . . . . . . . . . . . . . . . .19
16. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . .20
16.1 Landlord's Consent Required. . . . . . . . . . . . . . . . . . . .20
16.2 Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . .20
16.3 Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . .20
16.4 Corporate Transactions Constituting Assignment . . . . . . . . . .21
16.5 Landlord's Remedies. . . . . . . . . . . . . . . . . . . . . . . .21
16.6 Encumbrances, Licenses and Concession Agreements . . . . . . . . .22
17. DEFAULT BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
17.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . .22
17.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
17.3 Landlord's Right to Perform Tenant's Obligations . . . . . . . . .24
17.4 Interest on Past Due Obligations . . . . . . . . . . . . . . . . .24
17.5 Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . . .24
17.6 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . .24
18. DEFAULT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . .25
18.1 Cure Period. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
18.2 Mortgagee Protection . . . . . . . . . . . . . . . . . . . . . . .25
18.3 Tenant's Right to Perform Certain of Landlord's
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
19. ADVERTISEMENTS AND SIGNS. . . . . . . . . . . . . . . . . . . . . . . . .25
20. ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
21. SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . . . . . . . . . . .26
21.1 Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . .26
21.2 Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
</TABLE>
iii.
<PAGE>
INDEX
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
22. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS. . . . . . . . . . . . . .26
23. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
24. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
25. NO ACCORD AND SATISFACTION. . . . . . . . . . . . . . . . . . . . . . . .27
26. ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
27. SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
28. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
29. TRANSFER OF PREMISES BY LANDLORD. . . . . . . . . . . . . . . . . . . . .28
30. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .29
30.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . .29
30.2 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
30.3 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
30.4 California Law . . . . . . . . . . . . . . . . . . . . . . . . . .29
30.5 Gender; Singular and Plural. . . . . . . . . . . . . . . . . . . .29
30.6 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . .29
30.7 No Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . .29
30.8 Joint and Several Liability. . . . . . . . . . . . . . . . . . . .29
30.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . .29
30.10 Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . .30
30.11 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
30.12 Memorandum of Lease. . . . . . . . . . . . . . . . . . . . . . . .30
30.13 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
30.14 Real Estate Brokers. . . . . . . . . . . . . . . . . . . . . . . .30
30.15 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . .30
30.16 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . .30
31. INITIAL IMPROVEMENTS TO PREMISES. . . . . . . . . . . . . . . . . . . . .30
31.1 Landlord's Improvements. . . . . . . . . . . . . . . . . . . . . .30
31.2 Tenant's Improvements. . . . . . . . . . . . . . . . . . . . . . .31
31.3 Improvement Allowance. . . . . . . . . . . . . . . . . . . . . . .31
</TABLE>
iv.
<PAGE>
<TABLE>
<CAPTION>
INDEX
(CONTINUED)
PAGE
<S> <C>
32. RIGHT OF FIRST OPPORTUNITY. . . . . . . . . . . . . . . . . . . . . . . .32
32.1 Sale of Premises . . . . . . . . . . . . . . . . . . . . . . . . .32
32.2 Lease of Adjacent Parcel . . . . . . . . . . . . . . . . . . . . .32
32.3 Rights Not Assignable. . . . . . . . . . . . . . . . . . . . . . .33
32.4 Additional Limitation on Rights. . . . . . . . . . . . . . . . . .33
33. CONDITION SUBSEQUENT. . . . . . . . . . . . . . . . . . . . . . . . . . .33
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
</TABLE>
v.
<PAGE>
LEASE
This Lease, dated September 15, 1994, is made and entered into by and
between CALIFORNIA PACIFIC COMMERCIAL CORPORATION, a California corporation
("Landlord"), and CLONTECH LABORATORIES, INC., a California corporation
("Tenant").
Landlord and Tenant agree as follows:
1. PREMISES.
1.1 DESCRIPTION. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord for the term, at the rental, and upon all of the
other terms, covenants and conditions set forth herein, the real property
commonly referred to as 1020 East Meadow Circle, City of Palo Alto, County of
Santa Clara, State of California, and more particularly described as Exhibit "A"
attached hereto and incorporated herein by reference (the "premises"). The
premises consist of a single-story concrete tilt-up building containing
approximately 36,960 square feet of floor space (the "Building") situated upon a
parcel of land containing approximately 115,956 square feet. The foregoing
statements regarding size are approximations which the parties agree are
reasonable and the rental based thereon is not subject to revision in the event
that the actual size differs from the approximations. The entire premises shall
be under the exclusive control of Tenant throughout the term of this Lease. The
portion of the parcel of land described above not covered by the Building is
hereafter called the "Outside Areas."
1.2 CONDITION. Landlord represents and warrants to Tenant that as
of the Commencement Date (as defined in paragraph 2.1): (i) to the best of its
knowledge, without investigation, the improvements on the premises comply with
Applicable Law (as defined in paragraph 6.2) in effect as of said date,
including, without limitation, laws regarding seismic safety; (ii) the Building
does not contain any asbestos; (iii) to the best of its knowledge, without
investigation, there are no Hazardous Substances on the Property except as
disclosed in the letter identified in paragraph 1.3 below and the study
referenced therein and there is no underground storage tank on the Property; and
(iv) to the best of its knowledge, without investigation, the Building does not
have any structural defects. Specifically excluded from the foregoing
representations and warranties are the Tenant Improvements (as defined in
paragraph 31.3) and any actions taken by or on behalf of Tenant. Except as
expressly provided herein, Landlord makes no representations or warranty
whatsoever with respect to the condition of the premises (including but not
limited to the electrical and fire sprinkler systems, security, environmental
aspects and compliance with applicable laws), the suitability of the premises
for Tenant's intended use or that any utility services provided to the premises
are in form or amount suitable for Tenant's use.
1.3 HAZARDOUS SUBSTANCES. Except as provided in paragraph 1.2
above and as referenced in that certain letter dated July 20, 1994 from United
Soil Engineering, Inc., a copy of which is attached hereto as Exhibit "B",
Landlord hereby represents and warrants to Tenant that Landlord has not received
any notification that the premises are in violation of any Applicable Laws (as
defined in paragraph 6.2) relating to the storage, use, or disposal of any
Hazardous Substance (as defined in paragraph 6.4) and has no notice of any
claims, actions, proceedings or suits, government or otherwise, pending or
threatened regarding the same.
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2. TERM AND DELIVERY OF POSSESSION.
2.1 TERM. The term of this Lease shall be for a period of
one-hundred twenty (120) months, commencing upon the earlier of May 1, 1995, or
the date that Tenant commences occupancy of the premises for the uses set forth
in paragraph 6.1 (the "Commencement Date"), and ending at midnight on the date
which is one hundred twenty (120) months after the Commencement Date, unless
sooner terminated pursuant to the provisions hereof. The Commencement Date
shall be delayed as follows: (i) in the event that the City of Palo Alto takes
more than 60 days from the date of submission to approve Tenant's plans for its
initial interior improvements (it being understood that permits for exterior
modifications are excluded from this provision) and Tenant is making diligent
efforts to get such plans approved, the Commencement Date shall be delayed by
the number of days beyond said 60 days which it takes to obtain such approval,
not to exceed a total of 60 days; and (ii) in the event that Vance M. Brown &
Sons, Inc. ("Brown") takes longer than one hundred fifty (150) days from the
date of its commencement of work on Tenant's initial improvements to
substantially complete its work on Tenant's initial improvements and such delay
is attributable to Brown or its subcontractors and not Tenant, the Commencement
Date shall be delayed by the number of days beyond said 150 days which it takes
Brown to complete its work. In the event that Tenant does not have its
completed plans and specifications to Brown for bid by October 10, 1994, there
shall be offset against any delay in the Commencement Date in accordance with
the preceding sentence the number of days between October 10, 1994 and the date
Tenant submits such plans and specifications to Brown. Landlord and Tenant
shall execute and deliver to each other a letter acknowledging the Commencement
Date within thirty (30) days of said date. Landlord shall deliver possession of
the premises to Tenant no later than January 15, 1995 (the "Delivery Date"). If
Landlord is unable to deliver possession of the premises as of January 15, 1995,
Landlord shall not be liable for any damage caused for failing to deliver
possession, and this lease shall not be void or voidable. The Commencement Date
shall be delayed by the same number of days as the delay in the Delivery Date.
2.2 EARLY ENTRY. Tenant's occupancy of the premises prior to the
Commencement Date for the purpose of constructing the improvements (as defined
in paragraph 32.2) or for any other purpose permitted by Landlord shall be
subject to all of the terms and provisions hereof, except for the obligation to
pay rent which shall commence on the Commencement Date.
2.3 OPTIONS TO RENEW. Tenant shall have and is hereby granted one
(1) option to extend the term of this Lease for an additional period of five (5)
years. The option shall be exercisable by Tenant, provided Tenant is not then
in default hereunder, upon six (6) months written notice to Landlord prior to
the expiration of the initial Lease. The option period shall be upon the same
terms and conditions as set forth herein with respect to the initial term of
this Lease, except that: (a) the initial monthly base rental payable pursuant to
paragraph 3 during such option period shall be equal to the "market rate" (as
defined below) of the monthly base rental for comparable premises in the
immediate Palo Alto area prevailing at the commencement of such option period
and the base rent shall be increased on each anniversary of the commencement of
the lease term by four and one-half percent (4.5%) over the base rent payable
for the prior month; (b) Real Property Taxes payable by Tenant during the option
period shall include increases in Real Property Taxes resulting from a
reassessment following a change of
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ownership of the premises or any interest therein; and (c) there shall be no
additional option to extend. All references in this Lease to the term hereof
shall be construed to mean the initial term and such option period, unless the
context clearly indicates another meaning is intended.
The "market rate" shall be determined by agreement between Landlord
and Tenant. In determining the "market rate" all relevant factors shall be
taken into consideration, including, without limitation, the size and location
of the premises, the highest and best use of the premises (with or without the
then-existing improvements on the premises) and the quality and condition of the
improvements included in the premises; provided, however, that any of the trade
fixtures and any alterations, additions or improvements made to the premises by
Tenant at Tenant's cost and expense and which Tenant has the right to remove
upon expiration or termination of the Lease, shall not be taken into
consideration. If Landlord and Tenant cannot agree on an acceptable rent within
ten (10) days of receipt by Landlord of Tenant's notice to renew the Lease, then
each party shall promptly appoint an experienced real estate appraiser with at
least five (5) years experience appraising comparable properties in the Palo
Alto area who shall be a member of the American Institute of Real Estate
Appraisers ("AIREA") and such appraisers shall each determine the fair market
monthly Base Rent for the premises. Such appraisers shall, within twenty (20)
business days after their appointment, complete their appraisals and submit
their appraisal reports to Landlord and Tenant. If the fair market monthly Base
Rent of the premises established in the two (2) appraisals varies by five
percent (5%) or less of the higher rental, the average of the two shall be
controlling. If said fair market monthly Base Rent varies by more than five
percent (5%) of the higher rental, said appraisers, within ten (10) days after
submission of the last appraisal, shall appoint a third appraiser who shall be a
member of the AIREA. The appraisers shall arrange for a simultaneous delivery of
such determinations to the third appraiser. The role of the third appraiser
shall be to select which of the two proposed determinations most closely
approximates his determination of the fair market monthly Base Rent. The third
appraiser shall have no right to propose a middle ground or any modification of
either of the two proposed determinations. The determination he chooses as most
closely approximating his determination shall constitute the decision of the
appraisers and be final and binding upon the parties. Each party shall pay the
cost of its own appraiser and shall share the cost of the third appraiser, if
any. If either Landlord or Tenant fails to appoint an appraiser, or if an
appraiser appointed by either of them fails, after his appointment, to submit
his appraisal within the required period or if the two appraisers fail to
appoint a third appraiser within the required period, application shall be made
within twenty (20) days thereafter by either Landlord or Tenant to the AIREA,
which shall appoint a member of said institute willing to serve as appraiser.
In the event the appraisers have not determined the fair market
rental value as of the date for the rental adjustment, Tenant shall, on an
interim basis, pay Landlord monthly Base Rent based on the last monthly Base
Rent payable during the initial term. Upon the appraisers' determination,
Tenant shall be entitled to a credit against the next rental payment payable by
Tenant hereunder, or Tenant shall make an additional payment with the next
rental payable by Tenant hereunder, in the amount of such difference.
2.4 OPTION NOT ASSIGNABLE. The option granted to Tenant in this
Lease is personal to CLONTECH LABORATORIES, INC. ("Clontech"), and said option
is not assignable by Clontech either as a part of an assignment of this Lease or
separately or apart
3.
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therefrom, and no option may be separated from this Lease in any manner by
reservation or otherwise; provided that said option may be assigned by Clontech
as part of the assignment of this Lease by Clontech (a) to a parent, subsidiary,
affiliate, division, or corporation controlling, controlled by or under common
control with Clontech, or (b) to a successor corporation of Clontech by merger,
consolidation or non-bankruptcy reorganization, or to a successor corporation
which purchases all or substantially all of the assets of Clontech, provided
that in each such case the assignee or successor entity expressly assumes and
agrees to perform for the benefit of Landlord all of the obligations of Tenant
hereunder.
3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord during the term of
this Lease monthly base rent (hereafter called "Base Rent"), in installments as
follows:
Month Base Rent Per Month
Months 1-6 $23,400.00
Months 7-12 $29,250.00
Months 13-24 $37,699.20
Months 25-36 $39,547.20
Months 37-48 $41,395.20
Months 49-60 $43,243.20
Months 61-72 $45,091.20
Months 73-84 $46,939.20
Months 85-96 $49,156.80
Months 97-108 $51,374.40
Months 109-120 $53,592.00
3.2 MANNER OF PAYMENT. Except as otherwise expressly provided
herein, Tenant shall pay to Landlord the rent, including the Base Rent
calculated as set forth above, without deduction, offset or abatement, and
without prior notice or demand, in advance commencing on the Commencement Date
and thereafter on the first day of each calendar month of the term of this
Lease. Rent shall be payable in lawful money of the United States to Landlord
at the address of Landlord set forth in paragraph 23 below or to such other
persons or at such other places as Landlord may from time to time designate in
writing. Tenant's obligation to pay rent for any partial month shall be
prorated on the basis of a thirty (30) day month.
3.3 LATE PAYMENT CHARGE. If any installment of rent or any other
sum due from Tenant is not received by Landlord within five (5) business days
after the due date, Tenant shall pay to Landlord an additional sum equal to five
percent (5%) of the amount overdue as a late charge, plus interest at the annual
rate of ten percent (10%).
4. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit
with Landlord in cash the sum of Thirty Seven Thousand Dollars ($37,000) (the
"Deposit") as security for the faithful performance by Tenant of all of its
obligations hereunder. If Tenant fails to pay rent or any other sums due
hereunder (after notice and the right to cure as provided in paragraph 17), or
otherwise defaults with respect to any provision of this Lease, Landlord may
use, apply, or retain all or any portion of the Deposit for the payment of any
rent or other sum in
4.
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default, or to compensate Landlord for the payment of any other sum which
Landlord may become obligated to spend by reason of Tenant's default, or to
compensate Landlord for any expenditure, loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of the
Deposit, Tenant shall, within ten (10) days after written demand therefor,
deposit with Landlord an amount in cash sufficient to restore the Deposit to the
full amount hereinabove stated. Landlord shall not be required to keep the
Deposit separate from its general funds. The Deposit, less any portion thereof
which Landlord is entitled to retain, shall be returned without interest, to
Tenant within thirty (30) days after the later of the expiration of the term
hereof or the date on which Tenant vacates the premises.
5. TAXES.
5.1 TENANT'S PERSONAL PROPERTY. Tenant shall pay directly to the
charging authority prior to delinquency all taxes assessed against and levied
upon Tenant's leasehold improvements, trade fixtures, furnishings, equipment and
all other personal property and merchandise of Tenant situated in or about the
premises.
5.2 REAL PROPERTY TAXES.
(a) Tenant shall pay to Landlord all Real Property Taxes (as
hereinafter defined) levied with respect to the premises. Tenant shall pay
to Landlord all Real Property Taxes on or before the later of (1) twenty
(20) days prior to delinquency thereof, or (2) ten (10) days after the date
on which Tenant receives a copy of the tax bill or other reasonable
evidence of the amount of Real Property Taxes due and payable by Tenant
hereunder.
(b) The term "Real Property Taxes" as used herein shall mean
(i) all taxes, assessments, levies and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay for any general or
special assessments for public improvements, services or benefits and any
increases resulting from reassessments caused by any new construction or
change in valuation), now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or
indirect power to tax or levy assessments, which are levied or assessed
against or with respect to (a) the value, occupancy or use of the premises
(as now constructed or as may at any time hereafter be constructed, altered
or otherwise changed), (b) the fixtures, equipment and other real or
personal property of Landlord that are an integral part of the premises, or
(c) the use of the Outside Areas, public utilities, or energy within the
premises; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the premises; and
(iii) any new excise, transaction, sales, privilege, or other tax now or
hereafter imposed upon Landlord as a result of this Lease.
If at any time during the lease term the taxation or
assessment of the premises prevailing as of the Commencement Date shall be
altered so that in lieu of or in addition to any Real Property Taxes
described above there shall be levied, assessed or imposed (whether by
reason of a change in the method of taxation or assessment, creation of a
new tax or charge or any other cause) an alternate, substitute or
additional
5.
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tax or charge (i) on the value, use or occupancy of the premises, (ii) on
or measured by the gross receipts, income or rentals from the premises, or
on Landlord's business of leasing the premises, or (iii) computed in any
manner with respect to the operation of the premises, then any such tax or
charge, however designated, shall be included within the meaning of the
term "Real Property Taxes" for purposes of this Lease.
Notwithstanding the foregoing, the term "Real Property
Taxes" shall not include (1) estate, inheritance, transfer, gift or
franchise taxes of Landlord or the federal or state income tax imposed on
Landlord's income from all sources, or (2) during the initial ten (10) year
term of this Lease that portion of any increase in Real Property Taxes
assessed against the premises resulting solely from a reassessment
following any change of ownership of the premises occurring during the
initial ten (10) year term; provided that during any option extension
period "Real Property Taxes" shall include, without limitation, the portion
of any increase in Real Property Taxes resulting from a reassessment
following a change of ownership of the premises occurring either during the
initial term of this Lease or during the option extension period.
(c) Tenant's liability to pay Real Property Taxes shall be
prorated on the basis of a 365-day year to account for any fractional
portion of a fiscal tax year included in the lease term at the commencement
or expiration of the term.
(d) Upon Tenant's reasonable request, Landlord shall appeal
any tax assessment on Tenant's behalf at no charge to Tenant.
6. USE.
6.1 PERMITTED USES. The premises shall be used and occupied only
for the following purposes: administrative offices, bio-medical research and
development, assembly, manufacturing, sales and for any lawful purposes
incidental thereto which are permitted by applicable zoning ordinances, and for
no other use or purpose without Landlord's prior written consent.
6.2 COMPLIANCE WITH LAW. Tenant shall not use the premises or
suffer or permit anything to be done in or about the premises which will in any
way conflict with any law, statute, zoning restriction, ordinance or
governmental law, rule, regulation, permit or requirement of duly constituted
public authorities, covenants, easements and restrictions of record, permits or
the requirements of any applicable fire insurance underwriting or rating bureau
now or hereafter constituted relating in any manner to or affecting the
condition, use or occupancy of the premises as may now or hereafter be in
effect, including, without limitation, (i) the law commonly known as "The
Americans With Disabilities Act" ("ADA"), (ii) laws pertaining to industrial
hygiene and environmental conditions on, in, under or about the premises
(including soil and groundwater conditions); and (iii) laws pertaining to the
use, generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substances as
hereinafter defined (collectively called "Applicable Law"). Tenant, at Tenant's
sole expense, shall promptly comply with all Applicable Laws including, without
limitation, capital improvements required as a result of Tenant's particular use
of the premises or as a result of improvements undertaken by Tenant to the
premises. Notwithstanding the
6.
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foregoing, capital improvements (including, without limitation, capital
improvements required by ADA) not required as a result of Tenant's particular
use of the premises or as a result of improvements undertaken by Tenant to the
premises shall be Landlord's responsibility. Tenant shall pay Landlord as
additional rent on the first day of each month an amount equal to the monthly
cost of such improvements if the cost of such improvements were amortized in
accordance with standard accounting practice together with interest on the
unamortized balance at the Bank of America reference rate at the time such
improvements are constructed plus 2% per annum. Tenant shall, within five (5)
business days after receipt of Landlord's written request, provide Landlord with
copies of all documents and information, including, but not limited to, permits,
registrations, applications, reports and certificates, evidencing Tenant's
compliance with any Applicable Law specified by Landlord, and shall immediately
upon receipt, notify Landlord in writing (with copies of any documents involved)
of any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving failure by Tenant or the premises to comply
with any Applicable Law.
6.3 RESTRICTIONS ON USE. Tenant shall not use or permit the use of
the premises in any manner that will tend to create waste on the premises or
constitute a nuisance to, or disturb the quiet enjoyment of, any other occupant
or user of the Building or any adjoining building. Tenant shall not use any
apparatus, machinery or other equipment in or about the premises that may cause
substantial noise or vibration or overload existing electrical systems, or
otherwise place any unusual loads upon the floors, walls or ceilings of the
premises which may overload the premises or jeopardize the structural integrity
of the Building or any part thereof. Tenant shall not make any penetrations of
the roof or exterior of the Building without the prior written approval of
Landlord. No materials or articles of any nature shall be stored upon any
portion of the Outside Areas unless located within an enclosure approved by
Landlord which complies with the reasonable rules and regulations issued by
Landlord from time to time; provided, however, that Tenant shall have the right
to place a back-up generator and a portable storage trailer on the Outside Area
so long as Tenant complies with all Applicable Law with respect thereto. Tenant
shall not cause or permit any toxic wastes or by-products or other harmful
chemicals to be discharged into the plumbing or sewage system of the Building or
onto the land underlying or adjacent to the Building. Tenant shall neutralize,
by filtering or otherwise, all acidic, oily or otherwise toxic fumes or wastes
generated by Tenant's activities on the premises.
6.4 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance,
chemical, material or waste whose presence, nature, quantity and/or
intensity of existence, use, manufacture, disposal, transportation, spill,
release or effect, either by itself or in combination with other materials
is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the premises, (ii) regulated or monitored by
any governmental authority, or (iii) a basis for liability of Landlord to
any governmental agency or third party under any applicable statute or
common law theory. Hazardous Substance shall include, but not be limited
to any "hazardous substance" as defined in Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act. Tenant shall not
engage in any activity in, on or about the Premises which constitutes a
Reportable
7.
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Use (as hereinafter defined) of Hazardous Substances without the express
prior written consent of Landlord and compliance in a timely manner (at
Tenant's sole cost and expense) with all Applicable Law. Tenant may give
Landlord notice of such use, and seek such consent, concurrently with
Tenant's periodic submission to the local fire department or other
governmental authority to which Tenant must report such use. "Reportable
Use" shall mean: (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use, transportation
or disposal of a Hazardous Substance that requires a permit from, or with
respect to which a report, notice, registration or business plan is
required to be filed with, any governmental authority. Reportable Use
shall also include Tenant's being responsible for the presence in, on or
about the premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Tenant may, without Landlord's prior consent, but in compliance
with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Tenant in the normal course of Tenant's
business permitted on the premises, so long as such use is not a Reportable
Use and does not expose the premises or neighboring properties to any
meaningful risk of contamination or damage or expose Landlord to any
liability therefor. In addition, Tenant may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous
Substance, activity or storage tank by Tenant upon Tenant's giving Landlord
such additional assurances as Landlord, in its reasonable discretion, deems
necessary to protect itself, the public, the premises and the environment
against damage, contamination or injury and/or liability therefrom or
therefor, including, but not limited to, the installation (and removal on
or before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the premises (such as concrete encasements)
and/or the deposit of an additional Security Deposit under paragraph 4
hereof.
(b) DUTY TO INFORM. If either party knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the
premises, other than as previously consented to by Landlord and Tenant,
such party shall immediately give written notice of such fact to the other
party. Each party shall also immediately give the other party a copy of
any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying
the premises, concerning the presence, spill, release, discharge of, or
exposure to, any Hazardous Substance or contamination in, on, or about the
premises, including but not limited to all such documents as may be
involved in any Reportable Uses involving the premises.
(c) INDEMNIFICATION BY TENANT. Tenant shall be solely
responsible for and indemnify, protect, defend and hold Landlord, its
agents, employees and the premises, harmless from and against any and all
loss of rents and/or damages, losses, liabilities, judgments, costs,
claims, liens, expenses, penalties, permits and attorney's and consultant's
fees arising out of or involving any Hazardous Substance or storage tank
brought on the premises by or for Tenant or under Tenant's control,
(hereinafter referred to as "Claims") including, but not limited to, the
effects of any contamination or injury to
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person, property or the environment, and the cost of investigation
(including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved. Tenant shall reimburse Landlord for: (i) losses in or
reductions to rental income resulting from Tenant's use, storage, or
disposal of Toxic Materials; and (ii) all costs of refitting or other
alternations to the premises necessitated by Tenant's use, storage, or
disposal of Toxic Materials including, without limitation, alterations
required to accommodate an alternate use of the premises. Tenant agrees to
defend all Claims on behalf of Landlord with counsel reasonably acceptable
to Landlord, and to pay all fees, costs, damages, or expenses relating to
or arising out of any Claim including reasonable attorneys' fees and costs.
Tenant shall further be solely responsible for and shall indemnify, defend,
and hold Landlord and its agents harmless from and against all Claims,
including reasonable attorneys' fees and costs, arising out of or in
connection with any removal, clean-up, or restoration work which is
required by any government agency having jurisdiction and which arises from
Tenant's storage, use, or disposal of Toxic Materials on the premises
during its tenancy. Tenant's obligations hereunder shall survive the
termination of this Lease. No termination, cancellation or release
agreement entered into by Landlord and Tenant shall release Tenant from its
obligations under this Lease with respect to Hazardous Substances or
storage tanks, unless specifically so agreed by Landlord in writing at the
time of such agreement.
(d) INDEMNIFICATION BY LANDLORD. Landlord shall be solely
responsible for and indemnify, protect, defend and hold Tenant and its
agents and employees harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits
and attorney's and consultant's fees arising out of or involving any
Hazardous Substance brought on the premises by or for Landlord or under
Landlord's control, (hereinafter referred to as "Claims") including, but
not limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Landlord. Landlord
agrees to defend all Claims on behalf of Tenant with counsel acceptable to
Tenant and to pay all fees, costs, damages, or expenses relating to or
arising out of any Claim including attorneys' fees and costs. Landlord's
obligations hereunder shall survive the termination of this Lease. No
termination, cancellation or release agreement entered into by Landlord and
Tenant shall release Landlord from its obligations under this Lease with
respect to Hazardous Substances unless specifically so agreed by Tenant in
writing at the time of such agreement.
7. MAINTENANCE AND REPAIRS.
7.1 LANDLORD'S OBLIGATIONS. Landlord shall keep in good condition,
order, and repair the foundation of the Building and the exterior roof of the
Building (except that Tenant shall repair at Tenant's expense any damage caused
by Tenant's activities on the roof, including, but not limited to, the
installation of air conditioning equipment and/or duct work, or other roof
penetrations, and improper flashing or caulking, and any damage to exposed air
conditioning equipment and duct work installed by or for Tenant). Landlord
shall exercise reasonable diligence in performing such repairs as soon as
practicable. However, Landlord shall have no obligation to make repairs under
this paragraph until a reasonable time after Landlord has reasonable knowledge
of the need for such repairs, or after Landlord's receipt of written
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notice from the Tenant of the need for such repairs. Except as otherwise
specifically provided herein, there shall be no abatement of rent or other sums
payable by Tenant prior to or during any repairs by Tenant or Landlord. Tenant
shall pay Landlord upon demand as additional rent an amount equal to the cost
incurred by Landlord under this paragraph 7.1; provided, however, that the cost
of any capital improvements shall be amortized over such period as Landlord
shall reasonably determine together with interest on the unamortized balance at
the Bank of America reference rate at the time such improvements are constructed
plus 2% per annum.
7.2 TENANT'S OBLIGATIONS. Tenant shall, at Tenant's expense, keep
in good and safe condition, order and repair the premises and every part
thereof, including, without limitation, all plumbing, heating, air conditioning,
ventilating, fire sprinklers, electrical and lighting facilities, systems,
appliances and equipment within the Premises; fixtures, exterior and interior
walls, floors, ceilings, windows, doors, entrances, all glass (including plate
glass) and skylights located within the premises. In keeping the premises in
good and safe condition, order and repair, Tenant shall exercise and perform
good maintenance practices. Specifically, and not by way of limitation, Tenant
shall at its expense maintain in full force at all times during the term of this
Lease: (i) a heating, ventilating and air conditioning ("HVAC") systems
preventive maintenance contract covering all HVAC systems servicing the
premises, which shall provide for and include, without limitation, replacement
of filters, oiling and lubricating of machinery, parts replacement, adjustment
of drive belts, oil changes, weather proofing of all exposed HVAC equipment and
ducts, and other preventive maintenance; (ii) a service contract for the washing
of all windows of the premises (both interior and exterior surfaces) which
provides for the periodic washing of all such windows (iii) a fire sprinkler
system, water flow and smoke alarm preventative maintenance contract covering
all sprinkler and smoke alarm systems services on the premises; and (iv) a
landscape maintenance agreement providing for the maintenance of the landscaping
and paved areas. All such agreements shall be with qualified service companies
or contractors satisfactory to both Landlord and Tenant and shall provide that
the services are performed on a regular basis satisfactory to both Landlord and
Tenant. All repairs required to be made shall be made promptly with new
materials of like kind and quality. Tenant shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Tenant's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Tenant, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the premises by or for Tenant or under its control.
7.3 MAINTENANCE OF OUTSIDE AREAS. Tenant shall maintain and
repair, at Tenant's expense, the Outside Areas, together with all facilities and
improvements now or hereafter located thereon, and together with all street
improvements or other improvements adjacent thereto as may be required from time
to time by governmental authority, including, without limitation, the following:
(a) landscaping maintenance and replacement; (b) cleaning and repairing concrete
walkways and patios; (c) sweeping and repairing paved parking areas; (d)
operating and maintaining all directional and security lighting, if any; (e)
maintaining all directional and security signs; (f) furnishing water for
landscaping; (g) pest control service; and (h) rental or depreciation on
maintenance and operating machinery. Such areas shall be
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maintained by Tenant at all times in a first class condition. Notwithstanding
the foregoing, Landlord shall be responsible for repaving the parking areas and
Tenant shall pay Landlord as additional rent on the first day of each month an
amount equal to the cost thereof amortized in accordance with standard
accounting practice together with interest on the unamortized balance at the
Bank of America reference rate at the time such work is undertaken plus 2% per
annum.
8. ALTERATIONS.
8.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not, without
Landlord's prior written consent, which shall not be unreasonably withheld or
delayed, make any alterations, improvements, additions or utility installations
(collectively called "alterations") in, on or about the premises, except for
nonstructural alterations which do not decrease the value of the premises and
which in each case do not exceed Ten Thousand Dollars ($10,000) in cost. Any
non-structural alteration which exceeds the cost of Ten Thousand Dollars
($10,000), and any structural alteration, shall require Landlord's prior written
approval. As used in this paragraph 8.1, the term "utility installation" means
power panels, wiring, fluorescent fixtures, space heaters, conduits, air
conditioning and plumbing. If Tenant uses a contractor other than Vance M.
Brown & Sons, Inc. and the improvements are structural or cost more than Twenty
Five Thousand Dollars ($25,000), prior to construction or installation of any
alterations which require Landlord's prior written approval, Landlord may
require Tenant to provide Landlord, at Tenant's expense, a lien and completion
bond in an amount equal to the estimated cost of such alterations, to insure
Landlord against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Tenant make any alterations which require
Landlord's prior written consent without obtaining such prior written consent,
Tenant shall upon demand by Landlord immediately remove the same and restore the
premises to its original condition before such alterations, all at Tenant's
expense.
8.2 PLANS AND PERMITS. Any alterations which Tenant shall desire
to make in or about the premises and which require the prior written consent of
Landlord shall be presented to Landlord in written form, with proposed detailed
plans and specifications therefor prepared at Tenant's sole expense. Landlord
shall give its written approval or disapproval thereof within ten (10) working
days after receipt by Landlord. If Landlord fails to give its written approval
or disapproval within said period of ten (10) working days, such alterations
shall be deemed approved by Landlord. Any consent by Landlord thereto shall be
deemed conditioned upon Tenant's acquisition of all permits required to make
such alteration from all appropriate governmental agencies, the furnishing of
copies thereof to Landlord prior to commencement of the work, and the compliance
by Tenant with all conditions of said permits in a prompt and expeditious
manner, all at Tenant's sole expense. Upon completion of any such alteration,
Tenant, at Tenant's sole cost, shall immediately deliver to Landlord "as-built"
plans and specifications therefor, or written confirmation that the alteration
has been completed consistent with the detailed plan previously provided to
Landlord.
8.3 CONSTRUCTION WORK DONE BY TENANT. All construction work
required or permitted to be done by Tenant shall be performed by a licensed
contractor in a prompt, diligent, and good and workmanlike manner and shall
conform in quality and design with the premises existing as of the date of
delivery of possession to Tenant, and shall not diminish the value of the
Building. In addition, all such construction work shall be performed in
compliance with all
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applicable statutes, ordinances, regulations, codes and orders of governmental
authorities and insurers of the premises. Tenant or its agents shall secure all
licenses and permits necessary therefor. Work, once started, shall be
diligently pursued through to completion in accordance with the plans and
specifications approved by Landlord. No changes shall be made to such plans and
specifications as approved without the prior approval of Landlord.
8.4 ROOF REPAIRS. All installation of air conditioning equipment
and duct work requiring penetration of the roof shall be properly flashed and
caulked. Any electrical or refrigeration conduits or other piping or materials
installed by Tenant in the Building shall be installed beneath the surface of
the roof (and not on the surface of the roof), and Tenant shall thereafter
repair and reroof the affected portions of the roof surface. Any equipment
placed by Tenant on the roof shall be elevated and supported by Tenant so as not
to inhibit drainage or Landlord's repair of the roof pursuant to paragraph 7.1.
8.5 TITLE TO ALTERATIONS. Unless Landlord requires the removal
thereof as set forth in paragraphs 8.1 or 8.6, any alterations which may be made
on the premises, shall become the property of Landlord upon installation or
construction thereof on the premises and shall remain upon and be surrendered
with the premises at the expiration or sooner termination of the term of this
Lease. Without limiting the generality of the foregoing, all heating, lighting,
electrical (including all wiring, conduits, main and subpanels), air
conditioning, partitioning, drapery, and carpet installations made by Tenant,
regardless of how affixed to the premises, together with all other alterations
that have become an integral part of the premises, shall be and become the
property of Landlord upon installation, and shall not be deemed trade fixtures,
and shall remain upon and be surrendered with the premises at the expiration or
sooner termination of this Lease. Notwithstanding the provisions of this
paragraph 8.5, Tenant's furnishings, trade fixtures, machinery and equipment,
other than that which is affixed to the premises so that it cannot be removed
without material damage to the premises, shall remain the property of Tenant and
may be removed by Tenant, provided Tenant at Tenant's expense immediately after
removal repairs any damage to the premises caused thereby.
8.6 REMOVAL OF ALTERATIONS. Except with respect to the initial
improvements being constructed by Tenant in accordance with paragraph 31, at the
time that Landlord consents to any alterations which require Landlord's prior
written consent pursuant to paragraph 8.1 above, or within fourteen (14) days
after the date on which Tenant informs Landlord in writing of alterations which
do not require Landlord's prior written consent pursuant to paragraph 8.1 above,
Landlord may elect, by written notice to Tenant, to require Tenant to remove any
alterations that Tenant has made to the premises and to restore the premises as
hereinafter provided. If Landlord so elects, Tenant shall, at its sole expense,
upon expiration of the lease term or within twenty (20) days after any sooner
termination thereof, remove such alterations, repair any damage occasioned
thereby, and restore the premises to the condition existing as of the
Commencement Date or such other condition as may reasonably be designated by
Landlord in its election. The obligations of Tenant set forth in this paragraph
shall survive the termination of this Lease.
9. MECHANICS' LIENS. Tenant shall pay when due all claims for labor or
materials furnished to or for Tenant at or for use in the premises, which claims
are or may be secured by any mechanic's or material man's lien against the
premises or any interest therein. Tenant shall
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give Landlord notice of the date of commencement of any work in the premises not
less than ten (10) days prior thereto, and Landlord shall have the right to post
notices of non-responsibility or similar notices in or on the premises in
connection therewith. If any such liens are filed, Landlord may, without
waiving its rights and remedies based on such breach by Tenant and without
releasing Tenant from any obligations, cause such liens to be released by any
means it deems proper, including payment in satisfaction of the claim giving
rise to such lien. Landlord may take such action no sooner than five (5)
business days after giving Tenant written notice of its election to do so.
Tenant shall pay to Landlord upon demand any sum paid by Landlord to remove such
liens together with Landlord's costs and attorneys' fees and interest at the
rate of ten percent (10%) per annum from the date of payment.
10. UTILITIES; SECURITY SERVICES. Tenant shall pay when due directly to
the charging authority all charges for water, gas, electricity, telephone,
refuse pickup, janitorial services and all other utilities and services supplied
or furnished to the premises during the term of this Lease, together with any
taxes thereon. In no event shall Landlord be liable to Tenant for interruption
of Tenant's business due to failure or interruption of any such utilities or
services, unless caused by the negligence or willful misconduct of Landlord.
Landlord shall not be responsible for providing security guards or other
security protection for all or any portion of the premises, and Tenant may at
its own expense provide or obtain such security services as Tenant may desire to
ensure the safety of the premises.
11. INDEMNITY.
11.1 TENANT INDEMNIFICATION OF LANDLORD. Tenant hereby indemnifies
Landlord and holds Landlord harmless from and against any and all claims for
damage, loss, expense or liability due to, but not limited to, bodily injury,
including death resulting at any time therefrom, and/or property damage, now or
hereafter arising from any act, work or things done or permitted to be done or
otherwise suffered, or any omission in or about the premises, by Tenant or by
any of Tenant's agents, employees, contractors or invitees, or from any breach
or default by Tenant in the performance of any obligation on the part of Tenant
to be performed under the terms of this Lease, except to the extent such damage,
loss, expense or liability is caused by the negligence or willful misconduct of
Landlord or its employees or agents or by any breach by Landlord of its
obligations hereunder. Tenant shall also indemnify Landlord from and against
all damage, loss, expense (including, without limitation, reasonable attorneys'
fees), and liability incurred or suffered by Landlord in the defense of or
arising out of or resulting from any such claim or any action or proceeding
brought thereon. In the event any action or proceeding shall be brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord shall
defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. The obligations of Tenant contained in this paragraph shall survive
the termination of this Lease.
11.2 LANDLORD INDEMNIFICATION OF TENANT. Landlord hereby
indemnifies Tenant and holds Tenant harmless from and against any and all claims
for damage, loss, expense or liability due to, but not limited to, bodily
injury, including death resulting at any time therefrom, and/or property damage,
now or hereafter arising from any act, work or things done or permitted to be
done or otherwise suffered, or any omission in or about the premises, by
Landlord or by any of Landlord's agents, employees, contractors or invitees, or
from any breach or default by Landlord in the performance of any obligation on
the part of Landlord to be
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performed under the terms of this Lease, except to the extent such damage, loss,
expense or liability is caused by the negligence or willful misconduct of Tenant
or its employees or agents or by any breach by Tenant of its obligations
hereunder; provided, however, that Landlord shall not be liable for (i) any
injury to Tenant's business or any loss of income therefrom; or (ii) any
property damage to Tenant's personal property on the premises resulting from
Landlord's performance of, or failure to perform, its maintenance and repair
obligations hereunder. Landlord shall also indemnify Tenant from and against
all damage, loss, expense (including, without limitation, reasonable attorneys'
fees), and liability incurred or suffered by Landlord in the defense of or
arising out of or resulting from any such claim or any action or proceeding
brought thereon. In the event any action or proceeding shall be brought against
Tenant by reason of any such claim, Landlord upon notice from Tenant shall
defend the same at Landlord's expense by counsel reasonably satisfactory to
Tenant. The obligations of Landlord contained in this paragraph shall survive
the termination of this Lease.
12. WAIVER OF CLAIMS. Tenant hereby waives any claims against Landlord
for injury to Tenant's business or any loss of income therefrom or for damage to
the goods, wares, merchandise or other property of Tenant, or for injury or
death of Tenant's agents, employees, invitees, or any other person in or about
the premises regardless of whether the same results from conditions existing
upon the premises or from other sources or places, and regardless of whether the
cause of such damage or injury or the means of repairing the same is
inaccessible to Tenant; however, such waiver shall not apply to claims arising
from Landlord's negligence or willful misconduct.
13. INSURANCE.
13.1 TENANT'S LIABILITY INSURANCE. Tenant shall, at Tenant's
expense, obtain and keep in force during the term of this Lease a policy of
comprehensive public liability insurance insuring Landlord and Tenant against
any liability arising out of the condition, use, occupancy or maintenance of the
premises. Such policy of insurance shall have a combined single limit for both
bodily injury and property damage in an amount not less than Three Million
Dollars ($3,000,000). No more often than every five years, Landlord may require
Tenant to increase the amount of such coverage if, in Landlord's opinion, the
amount of such coverage is no longer equal to prevailing standards. The policy
shall contain cross-liability endorsements and shall insure performance by
Tenant of the indemnity provisions of paragraph 11. The limits of said
insurance shall not, however, limit the liability of Tenant hereunder.
13.2 LANDLORD'S LIABILITY INSURANCE. Landlord may maintain a policy
or policies of comprehensive general liability insurance insuring Landlord (and
such other persons as may be designated by Landlord) against liability for
personal injury, bodily injury or death, and damage to property occurring or
resulting from an occurrence in, on or about the premises with a combined single
limit of not less than Three Million Dollars ($3,000,000), or such greater
coverage as Landlord may from time to time determine is reasonably necessary for
Landlord's protection.
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13.3 PROPERTY INSURANCE.
(a) Landlord shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to
the premises, but excluding coverage of merchandise, fixtures, equipment
and leasehold improvements of Tenant which are not considered part of the
real estate for insurance purposes, in the amount of the full replacement
value thereof, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk), including boiler and machinery coverage
and an inflation endorsement, and, at Landlord's option, flood and
earthquake. In addition, Landlord shall obtain and keep in force, during
the term of this Lease, a policy of rental loss insurance commencing on the
date of loss, with proceeds payable to Landlord, which insurance may also
cover all Real Property Taxes, insurance premiums, and other sums payable
by Tenant to Landlord hereunder for said period. The insurance coverage
may include sprinkler leakage insurance if the Building contains fire
sprinklers. Tenant shall have no interest in or right to the proceeds of
any such insurance carried by Landlord.
(b) Tenant shall, at Tenant's sole expense, obtain and keep
in force during the term of this Lease, a policy of fire and extended
coverage insurance including a standard "all risk" endorsement, and a
sprinkler leakage endorsement, insuring the inventory, fixtures, equipment,
personal property, and leasehold improvements and alterations of Tenant
within the premises for the full replacement value thereof, as the same may
increase from time to time due to inflation or otherwise. The proceeds
from any of such policies shall be used for the repair or replacement of
such items so insured and Landlord shall have no interest in the proceeds
of such insurance.
13.4 PAYMENT. Tenant shall pay to Landlord, during the term hereof,
within ten (10) days of presentation of an invoice by Landlord, the premiums for
the insurance obtained by Landlord pursuant to paragraphs 13.2 and 13.3(a);
provided, however, that Tenant shall pay fifty percent (50%) of the cost of the
premium for earthquake insurance, not to exceed $5,000 per year during the first
five years of the lease term, $10,000 per year during the second five years of
the lease term and $15,000 during the option period. Notwithstanding the
foregoing, Landlord may obtain liability insurance and property insurance for
the premises separately, or together with other buildings and improvements under
blanket policies of insurance. In the latter case, Tenant shall be liable for
only such portion of the premiums for such blanket policies as are allocable to
the premises, as reasonably determined by the insurer or Landlord. If the term
of this Lease does not expire concurrently with the expiration of the period
covered by such insurance, Tenant's liability for premiums shall be prorated on
an annual basis.
13.5 INSURANCE POLICIES. The insurance required to be obtained by
Tenant pursuant to paragraphs 13.1 and 13.3(b) shall be primary insurance and
(i) shall provide that the insurer shall be liable for the full amount of the
loss up to and including the total amount of liability set forth in the
declarations without the right of contribution from any other insurance coverage
of Landlord, (ii) shall be in a form satisfactory to Landlord, and (iii) shall
be carried with recognized companies admitted to do business in California. The
policy or policies, or duly executed certificates for them, shall be deposited
with Landlord on or prior to the Commencement Date. Each policy shall provide
for at least thirty (30) days prior written notice
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to Landlord of cancellation, non-renewal, or modification. At least thirty (30)
days before the expiration of any required insurance policy, Tenant shall
furnish Landlord with proof that a new policy has been issued, continuing in
force the insurance covered by the policy which is expiring. At the same time
Tenant shall furnish Landlord with reasonable evidence that all premiums for any
such new policy have been paid. Tenant shall not do or permit to be done
anything which shall invalidate any of the insurance policies referred to in
paragraphs 13.1, 13.2, and 13.3. Tenant shall indemnify and hold Landlord free
and harmless from and against any damage, loss, or liability which Landlord may
suffer or incur as a result of the non-renewal or cancellation of any insurance
coverage which Tenant is required to carry by the provisions of this Lease.
13.6 WAIVER OF SUBROGATION Tenant and Landlord each hereby waives
any and all rights of recovery against the other, or against the officers,
employees, agents and representatives of the other, for loss of or damage to the
property of the waiving party or the property of others under its control, where
such loss or damage is insured against under any insurance policy carried by
Landlord or Tenant and in force at the time of such loss or damage. Tenant and
Landlord shall, upon obtaining the policies of insurance required hereunder,
give notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease. Landlord and Tenant shall use
their reasonable best efforts to have their respective insurance companies waive
any rights of subrogation that such companies may have against Landlord or
Tenant, as the case my be.
13.7 NO LIMITATION OF LIABILITY Landlord makes no representation
that the limits of liability specified to be carried by Tenant or Landlord under
the terms of this Lease are adequate to protect any party. If Tenant believes
that the insurance coverage required under this Lease is insufficient to
adequately protect Tenant, Tenant shall provide, at its own expense, such
additional insurance as Tenant deems adequate.
14. DAMAGE OR DESTRUCTION
14.1 PARTIAL DAMAGE-INSURED. Subject to the provisions of
paragraphs 14.3 and 14.4, if the premises or the Building, as the case may be,
are damaged to the extent of less than fifty percent (50%) of the then
replacement value thereof (excluding excavations and foundations with respect to
the Building) and such damage was caused by an act or casualty covered under an
insurance policy required to be maintained pursuant to paragraph 13.3(a),
Landlord shall cause such damage to be repaired as soon as reasonably possible
and this Lease shall continue in full force and effect.
14.2 PARTIAL DAMAGE-UNINSURED. Subject to the provisions of
paragraphs 14.3 and 14.4, if at any time during the term hereof the premises or
the Building, as the case may be, are damaged, and such damage was caused by an
act or casualty not covered under an insurance policy required to be maintained
by Landlord pursuant to paragraph 13.3(a), Landlord may at Landlord's option
either (i) repair such damage as soon as reasonably possible at Landlord's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice of termination of this Lease to Tenant within thirty
(30) days after the date of the occurrence of such damage, with the effective
date of such termination to be the date of the occurrence of such damage. In
the event Landlord gives such notice of termination of this Lease, Tenant shall
have the right, within ten (10) days after receipt of such notice, to agree in
writing
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on a basis satisfactory to Landlord to pay for the entire cost of repairing such
damage in which event the notice of termination shall be ineffective and this
Lease shall continue in full force and effect, and Landlord shall proceed to
make such repairs as soon as reasonably possible. If Tenant does not give such
notice within such ten (10) day period this Lease shall be terminated pursuant
to such notice of termination by Landlord. Notwithstanding Landlord's election
to repair such damage, Tenant shall have the right to terminate this Lease in
the event that the repair of the damage covered by this paragraph 14.2 can not
in Landlord's reasonable judgment be expected to be completed within two hundred
and seventy (270) days from the date of such damage. Tenant may exercise such
right only by written notice to Landlord delivered within thirty (30) days after
the date of the occurrence of such damage. Tenant shall also have the right to
terminate this lease in the event that the repair of the damage covered by this
paragraph 14.2 is not actually completed by the later of: (i) three hundred and
sixty days from the date of such damage; or (ii) seventy-five (75) days
following the date Landlord has notified Tenant it expects to complete such
repairs. Tenant may exercise such right only by written notice to Landlord
delivered within thirty (30) days after the date its right to terminate arises.
14.3 TOTAL DESTRUCTION. If at any time during the term hereof
either the premises or the Building is destroyed to the extent of fifty percent
(50%) or more of the then replacement value thereof (excluding excavations and
foundations with respect to the Building), from any cause, whether or not
covered by the insurance maintained by Landlord pursuant to paragraph 14.3(a),
this Lease shall at the option of either Landlord or Tenant terminate as of the
date of such destruction. The right to terminate this Lease may be exercised
within thirty (30) days after the date that Tenant notifies Landlord of the
occurrence of such damage. In the event that neither party elects to terminate
this Lease, Landlord shall at Landlord's expense repair such damage as soon as
reasonably possible, and this Lease shall continue in full force and effect.
14.4 DAMAGE NEAR END OF TERM. If the premises or the Building, as
the case may be, is destroyed or damaged in whole or in part to the extent of
One Hundred Thousand Dollars ($100,000) or more, whether from an insured or
uninsured casualty, during the last six (6) months of the term of this Lease,
Landlord or Tenant may cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to the other party of its
election to do so within thirty (30) days after the date of occurrence of such
damage. This paragraph 14.4 shall not apply during the last six (6) months of
the initial term in the event that Tenant has validly exercised its option to
renew in accordance with paragraph 2.3 above.
14.5 ABATEMENT OF RENT. Notwithstanding anything to the contrary
contained in paragraph 3 or elsewhere in this Lease, if the premises are
partially damaged and Landlord repairs or restores them pursuant to the
provisions of this paragraph 14, the rent, including Tenant's obligation to pay
Real Property Taxes and insurance premiums, payable hereunder for the period
commencing on the occurrence of such damage and ending upon completion of such
repair or restoration shall be abated in proportion to the extent to which
Tenant's use of the premises is impaired during the period of repair; provided
that nothing herein shall be construed to preclude Landlord from being entitled
to collect the full amount of any rental loss insurance proceeds. Except for
abatement of rent, if any, Tenant shall have no claim against Landlord for any
damage suffered by reason of any such damage, destruction, repair or
restoration.
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14.6 TENANT'S PROPERTY. Landlord's obligation to rebuild or restore
shall not include restoration of Tenant's trade fixtures, equipment,
merchandise, or any improvements, alterations or additions made by Tenant to the
premises.
14.7 NOTICE OF DAMAGE. Tenant shall notify Landlord within ten (10)
days after the occurrence thereof of any damage to all or any portion of the
premises. In no event shall Landlord have any obligation to repair or restore
the premises pursuant to this paragraph 14 until a reasonable period of time
after Landlord has reasonable knowledge of the need for such repairs or after
Landlord's receipt of notice from Tenant of the nature and scope of any damage
to the premises, and a reasonable period of time to collect insurance proceeds
arising from such damage (unless such damage is clearly not covered by insurance
then in effect covering the premises), not to exceed one hundred and eighty
(180) days.
14.8 REPLACEMENT COST. The reasonable determination in good faith
by Landlord of the estimated cost of repair of any damage or of the replacement
cost shall be conclusive for purposes of this paragraph 14, unless Tenant can
show otherwise.
14.9 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Tenant is legally responsible therefor (in which case
Tenant shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect, but
subject to Landlord's rights under paragraph 17), Landlord may at Landlord's
option either: (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Landlord's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds six (6) times
the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Tenant within thirty (30) days after receipt by Landlord of knowledge
of the occurrence of such Hazardous Substance Condition of Landlord's desire to
terminate this Lease as of the date sixty (60) days following the giving of such
notice. In the event Landlord elects to give such notice of Landlord's
intention to terminate this Lease, Tenant shall have the right within ten (10)
days after the receipt of such notice to give written notice to Landlord of
Tenant's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Tenant's expense and without
reimbursement from Landlord except to the extent of an amount equal to six (6)
times the then monthly Base Rent or $100,000, whichever is greater. Tenant
shall provide Landlord with the fund required of Tenant or satisfactory
assurance thereof within thirty (30) days following Tenant's said commitment.
In such event this Lease shall continue in full force and effect, and Landlord
shall proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Tenant does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in
Landlord's notice of termination. If a Hazardous Substance Condition occurs for
which Tenant is not legally responsible there shall be abatement of Tenant's
obligations under this Lease to the same extent as provided in paragraph 14.5
for a period of not to exceed twelve (12) months. "Hazardous Substance
Condition" shall mean the occurrence or discovery of a condition involving the
presence of, or a contamination by, a Hazardous Substance in, on or under the
premises.
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14.10 WAIVER OF STATUTES. The terms of this Lease shall govern the
effect of any damage to or destruction of the Premises with respect to the
termination of this Lease. Landlord and Tenant hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
15. CONDEMNATION.
15.1 PARTIAL TAKING. Subject to the provisions of paragraph 15.2,
if part of the premises is taken for any public or quasi-public use, under any
statute or right of eminent domain (collectively a "taking"), and a part of the
premises remains which is reasonably suitable for Tenant's continued occupancy
for the uses permitted by this Lease, this Lease shall, as to the part so taken,
terminate as of the date the condemnor or purchaser takes possession of the
property being taken, and the rent payable hereunder shall be reduced based upon
the extent to which the partial taking shall interfere with the business carried
on by Tenant on the premises. Landlord shall, at its own cost and expense, make
all necessary repairs or alterations to the premises in order to make the
portion of the premises not taken a complete architectural unit; provided,
however, that Landlord shall not be required to repair or restore any injury or
damage to the property of Tenant or to make any repairs or restoration of any
alterations, additions, fixtures or improvements installed on the premises by or
at the expense of Tenant.
15.2 TOTAL TAKING. If twenty percent (20%) or more of the floor
area of the Building is taken, or more than fifty percent (50%) of the land area
is taken, or such part thereof is taken so that there does not remain a portion
of the premises suitable for Tenant's continued occupancy for the uses permitted
hereunder, such taking shall be treated as a total taking and this Lease shall
terminate upon the date possession shall be taken by the condemning authority.
15.3 DISTRIBUTION OF AWARD. If a part or all of the premises is
taken, all compensation awarded upon such taking shall belong to and be paid to
Landlord, except that Tenant shall receive from the award a sum attributable to
Tenant's improvements or alterations made to the premises by Tenant at Tenant's
expense with Landlord's consent in accordance with this Lease which Tenant has
the right to remove from the premises pursuant to the provisions of this Lease,
but elects not to remove; or, if Tenant elects to remove any such improvements
or alterations made to the premises at Tenant's expense, Tenant shall receive a
sum for reasonable removal and relocation costs not to exceed the market value
of such improvements or alterations on the date possession of the premises is
taken. Notwithstanding the foregoing, Tenant shall have the right to seek a
claim against the taking authority for interruption of or damage to its business
and loss of business goodwill.
15.4 SALE UNDER THREAT OF CONDEMNATION. A sale by Landlord to any
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for purposes of this paragraph 15.
15.5 WAIVER OF STATUTES. The terms of this Lease shall govern the
effect of any taking of the premises. Landlord and Tenant hereby waive the
provisions of any present or future statute to the extent inconsistent herewith.
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16. ASSIGNMENT AND SUBLETTING.
16.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign this
Lease, or any interest therein, voluntarily or involuntarily, and shall not
sublet the premises or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person (the agents and servants of Tenant excepted)
to occupy or use the premises, or any portion thereof, without the prior written
consent of Landlord in each instance pursuant to the terms and conditions set
forth below, which consent shall not be unreasonably withheld or delayed.
16.2 DOCUMENTATION. Prior to any assignment or sublease which
Tenant desires to make, Tenant shall provide to Landlord: (i) the name and
address of the proposed assignee or sublessee, (ii) true and complete copies of
all documents relating to Tenant's prospective agreement to assign or sublease,
(iii) such other information as may be reasonably requested by Landlord, and
(iv) a document signed by Tenant and the proposed assignee or sublessee
specifying to Landlord's reasonable satisfaction all consideration to be
received by Tenant for such assignment or sublease in the form of lump sum
payments, installments of rent, or otherwise. For purposes of this paragraph
16, the term "consideration" shall include, without limitation, all monies or
other consideration of any kind, if such sums are related to Tenant's interest
in this Lease or in the premises, including but not limited to, bonus money, and
payments (in excess of book value thereof) for Tenant's assets, fixtures,
inventory, accounts, good will, equipment, furniture, general intangibles, and
any capital stock or other equity ownership of Tenant. Within ten (10) days
after the receipt of such written notice, Landlord shall either consent in
writing to such proposed assignment or sublease subject to the terms and
conditions hereinafter set forth, or notify Tenant in writing that Landlord
refuses such consent, specifying reasonable grounds for such refusal.
16.3 TERMS AND CONDITIONS. As a condition to Landlord's granting
its consent to any assignment or sublease, Landlord may require that (i) Tenant
pay to Landlord, as and when received by Tenant, one-half of the amount of any
excess of such consideration to be received by Tenant in connection with said
assignment or subletting, over and above the base rent, and all other sums
payable by Tenant to Landlord under the terms of this Lease; provided that
Tenant shall first be entitled to retain an amount of such excess consideration
equal to Tenant's reasonable direct costs of assigning or subletting, including,
without limitation, real estate brokerage commissions and concessions made to
the subtenant, if any, but not to exceed in the aggregate an amount equal to six
months' Base Rent, and (ii) Tenant and the proposed assignee or sublessee
demonstrate to Landlord's reasonable satisfaction that the assignee or sublessee
proposes to use the premises for substantially the same use or a use which is
otherwise satisfactory to Landlord, and the proposed use is not injurious to the
premises. Each assignment or sublease agreement to which Landlord has consented
shall be an instrument in writing in form satisfactory to Landlord, and shall be
executed by both Tenant and the assignee or sublessee, as the case may be. Each
such assignment or sublease agreement shall recite that it is and shall be
subject and subordinate to the provisions of this Lease, that the assignee or
sublessee accepts such assignment or sublease and agrees to perform all of the
obligations of Tenant hereunder, and that the termination of this Lease shall,
at Landlord's sole election, constitute a termination of every such assignment
or sublease. In the event Landlord shall consent to an assignment or sublease,
Tenant shall nonetheless remain liable for all obligations and liabilities of
Tenant under this Lease, including, but not limited to, the payment of rent.
The consent by Landlord to any
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assignment or sublease shall not constitute a waiver of the provisions of this
paragraph 16, including the requirement of Landlord's prior written consent,
with respect to any subsequent assignment or sublease. Tenant agrees to
reimburse Landlord upon demand for reasonable attorneys' fees incurred by
Landlord in connection with the negotiation, review, and documentation of any
such requested assignment or subleasing, but not to exceed the sum of One
Thousand Dollars ($1,000) in any transaction.
16.4 CORPORATE TRANSACTIONS CONSTITUTING ASSIGNMENT.
(a) Any dissolution, or the transfer either all at once or in
a series of related transfers, of a controlling percentage of the capital
stock of Tenant, or the sale, or series of sales of all or substantially
all of Tenant's assets located in, on, or about the premises, shall be
deemed an assignment. The phrase "controlling percentage" means the
ownership of, and the right to vote, stock possessing at least fifty
percent (50%) of the total combined voting power of all classes of Tenant's
capital stock issued, outstanding and entitled to vote for the election of
directors. Notwithstanding the foregoing, Tenant shall have the right to
assign, sublease or transfer to a subsidiary, parent or affiliated company,
or to a successor by merger, subject to the provisions of subparagraph 9(c)
below.
(b) Any such assignment or subletting described in
subparagraph (a) above shall be subject to the provisions for assignment
and subletting set forth in this paragraph 16.
(c) Notwithstanding the foregoing, Tenant may, without
Landlord's prior written consent and without any participation by Landlord
in assignment and subletting proceeds, sublet the premises or assign this
Lease to: (i) a subsidiary, affiliate, division, corporation, joint venture
or strategic partnership controlled or under common control with Tenant;
(ii) a successor corporation related to Tenant by merger, consolidation or
non-bankruptcy reorganization; or (iii) a purchaser of substantially all of
Tenant's assets. Tenant's foregoing rights to assign this Lease shall be
subject to the following conditions: (i) Tenant shall not be in default
hereunder; (ii) the transferee or successor entity shall expressly assume
Tenant's obligations hereunder; (iii) Tenant shall remain liable for all
obligations and liabilities of Tenant under this Lease; and (iv) the entity
to which the Lease is assigned or subleased has a net worth as of the date
of such assignment equal to at least the greater of the net worth of Tenant
as of the date of this Lease or as of the date immediately preceding such
assignment or sublease. Tenant and the proposed assignee or sublessee
shall provide such documentation as may be requested by Landlord to
demonstrate to Landlord's reasonable satisfaction that the condition set
forth in (iv) above has been satisfied. For the purposes of this Lease,
the sale of Tenant's capital stock through any public offering shall not be
deemed an assignment, subletting, or any other transfer of the Lease or the
premises.
16.5 LANDLORD'S REMEDIES. Any assignment or sublease without
Landlord's prior written consent shall at Landlord's election be void, and shall
constitute a default. If Tenant shall purport to assign this Lease, or sublease
all or any portion of the premises, or permit any person or persons other than
Tenant to occupy the premises without Landlord's prior written
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consent, Landlord may collect rent from the person or persons then or thereafter
occupying the premises and apply the net amount collected to the rent reserved
herein, but no such collection shall be deemed a waiver of Landlord's rights and
remedies under this paragraph 16, or the acceptance of any such purported
assignee, sublessee or occupant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained.
16.6 ENCUMBRANCES, LICENSES AND CONCESSION AGREEMENTS. Tenant shall
not encumber its interest under this Lease or any rights of Tenant hereunder, or
enter into any license or concession agreement respecting all or any portion of
the premises, without Landlord's prior written consent which consent shall not
unreasonably be withheld or delayed subject to the terms and conditions referred
to in paragraph 16.2 above, and Tenant's granting of any such encumbrance,
license, or concession agreement shall constitute an assignment for purposes of
this paragraph 16.
17. DEFAULT BY TENANT.
17.1 EVENT OF DEFAULT. The occurrence of any one or more of the
following events (an "Event of Default") shall constitute a default and breach
of this Lease by Tenant:
(a) The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder, as and when due, and
such failure shall not have been cured within ten (10) days after Tenant
receives written notice thereof from Landlord; provided that, if three or
more such failures shall occur during the lease term, then each and every
succeeding failure to pay any sum payable hereunder when due shall
constitute an Event of Default, and Tenant shall be entitled to a five (5)
day cure period or notice from Landlord with respect to any such failure to
pay; or
(b) Tenant's failure to perform any other term, covenant or
condition contained in this Lease and such failure shall have continued for
thirty (30) days after written notice of such failure is given to Tenant;
provided that, where such failure cannot reasonably be cured within said
thirty (30) day period, Tenant shall not be in default if Tenant commences
such cure within said thirty (30) day period and thereafter diligently
continues to pursue all reasonable efforts to complete said cure until
completion thereof. Said written notice shall constitute those required
under California Code of Civil Procedure, Section 1161, et seq.
17.2 REMEDIES. Upon any Event of Default, Landlord shall have the
following remedies in addition to all other rights and remedies provided by law
or equity:
(a) Landlord shall be entitled to keep this Lease in full
force and effect for so long as Landlord does not terminate Tenant's right
to possession (whether or not Tenant shall have abandoned the premises),
and Landlord may enforce all of its rights and remedies under this Lease,
including the right to recover rent and other sums as they become due under
this Lease; or
(b) Landlord may terminate the Tenant's right to possession
by giving Tenant thirty (30) days written notice of termination. Thirty
(30) days after the giving of the notice, this Lease and all of Tenant's
rights in the premises shall terminate. Any
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termination under this paragraph shall not release Tenant from the payment
of any sum then due Landlord or from any claim for damages or rent
previously accrued or then accruing against Tenant.
In the event this Lease is terminated pursuant to this
paragraph 17.2(b), Landlord may recover from Tenant:
(1) the worth at the time of award of the unpaid rent
which had been earned at the time of termination; plus
(2) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such
rental loss for the same period that Tenant proves could have
been reasonably avoided; plus
(3) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss for the
same period that Tenant proves could be reasonably avoided;
plus
(4) any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease, or which in the
ordinary course of things would be likely to result therefrom,
including without limitation, the following: (i) expenses for
cleaning, repairing or restoring the premises; (ii) costs
incurred as owner of the premises including without limitation
taxes and insurance premiums thereon, utilities and building
security; (iii) expenses in retaking possession of the
premises; and (iv) attorneys' fees and court costs.
The "worth at the time of award" of the amounts referred to in
subparagraphs (1) and (2) of this paragraph 17.2(b) shall be computed by
allowing interest at the greater of ten percent (10%) per annum, or (ii)
the maximum rate permitted by law. The "worth at the time of the award" of
the amount referred to in subparagraph (3) of this paragraph 17.2(b) shall
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award plus one percent
(1%). The term "time of award" as used in subparagraphs (1), (2) and (3)
shall mean the date of entry of a judgment or award against Tenant in an
action or proceeding arising out of Tenant's breach of this Lease. The
term "rent" as used in this paragraph shall include all sums required to be
paid by Tenant to Landlord pursuant to the terms of this Lease.
(c) This Lease may be terminated by a judgment specifically
providing for termination, or by Landlord's delivery to Tenant of written
notice specifically terminating this Lease. In no event shall any one or
more of the following actions by Landlord, in the absence of a written
election by Landlord to terminate this
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Lease, constitute a termination of this Lease or a waiver of Landlord's
right to recover damages under this paragraph 17:
(1) appointment of a receiver in order to protect
Landlord's interest hereunder;
(2) consent to any subletting of the premises or
assignment of this Lease by Tenant, whether pursuant to
provisions hereof concerning subletting and assignment or
otherwise; or
(3) any other action by Landlord or Landlord's agents
intended to mitigate the adverse effects of any breach of this
Lease by Tenant, including without limitation any action taken
to maintain and preserve the premises or any action taken to
relet the premises or any portion thereof for the account of
Tenant and in the name of Tenant.
17.3 LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. If Tenant
shall at any time fail to make any payment or perform any other act required to
be made or performed by Tenant under this Lease, then after the cure period
provided herein and after reasonable notice to Tenant, Landlord may, but shall
not be obligated to, make such payment or perform such other act to the extent
Landlord may deem desirable, and may, in connection therewith, pay any and all
expenses incidental thereto and employ counsel. No such action by Landlord
shall be deemed a waiver by Landlord of any rights or remedies Landlord may have
as a result of such failure by Tenant, or a release of Tenant from performance
of such obligation. All sums so paid by Landlord, including without limitation
all penalties, interest and costs in connection therewith, shall be due and
payable by Tenant to Landlord on the day immediately following any such payment
by Landlord. Landlord shall have the same rights and remedies for the
nonpayment of any such sums as Landlord may be entitled to in the case of
default by Tenant in the payment of rent.
17.4 INTEREST ON PAST DUE OBLIGATIONS. Any amount due to Landlord
hereunder and not paid within the cure period provided herein shall bear
interest at the lesser annual rate of (i) ten percent (10%); or (ii) the highest
rate then allowed by law, from the date due until paid in full. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
17.5 ADDITIONAL RENT. All sums payable by Tenant to Landlord or to
third parties under this Lease in addition to such sums payable pursuant to
paragraph 4 hereof shall be payable as additional sums of rent. For purposes of
any unlawful detainer action by Landlord against Tenant pursuant to California
Code of Civil Procedure Sections 1161-1174, or any similar or successor
statutes, Landlord shall be entitled to recover as rent not only such sums
specified in paragraph 3 as may then be overdue, but also all such additional
sums of rent as may then be overdue.
17.6 REMEDIES NOT EXCLUSIVE. No remedy or election hereunder shall
be deemed exclusive but shall, wherever possible, be cumulative with all other
remedies herein provided or permitted at law or in equity.
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18. DEFAULT BY LANDLORD.
18.1 CURE PERIOD. Landlord shall not be deemed to be in default in
the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within the period of
time specifically provided herein, or if no period of time has been provided,
then within thirty (30) days after receipt of written notice by Tenant to
Landlord specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are reasonably required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecute the same
to completion.
18.2 MORTGAGEE PROTECTION. If any deed of trust or mortgage
encumbering the premises so provides, in the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage encumbering the
premises whose address shall have been furnished to Tenant.
18.3 TENANT'S RIGHT TO PERFORM CERTAIN OF LANDLORD'S OBLIGATIONS.
If Landlord shall at any time fail to maintain or repair the roof in accordance
with paragraph 7.1, then after the cure period provided herein and five (5) days
after further notice to Landlord that Tenant intends to exercise its rights
under this paragraph 18.3, Tenant may, but shall not be obligated to, perform
such maintenance and repair. No such action by Tenant shall be deemed a waiver
by Tenant of any rights or remedies Tenant may have as a result of such failure
by Landlord, or a release of Landlord from performance of such obligation. All
reasonable sums paid by Tenant in performing such maintenance and repair shall
be due and payable by Landlord to Tenant on the day immediately following any
such payment by Tenant.
19. ADVERTISEMENTS AND SIGNS. Tenant shall not place or permit to be
placed any sign, display, advertisement, or decoration ("sign") on the exterior
of the Building, or elsewhere on the premises, without the prior written consent
of Landlord, which consent shall not be unreasonably withheld, as to the color,
size, style, character, content, and location of each such sign. Upon
termination of this Lease, Tenant shall remove any sign which it has placed on
the premises or the Building, and shall repair any damage caused by the
installation or removal of such sign.
20. ENTRY BY LANDLORD. Landlord and its agents shall be entitled to
enter into and upon the premises at all reasonable times upon reasonable notice
(except in the case of an emergency, in which event no notice shall be
required), for purposes of inspecting or making repairs, alterations or
additions to all or any portion thereof, including the erection and maintenance
of such scaffolding, canopies, fences and props as may be required, or for the
purpose of posting notices of nonresponsibility for alterations, additions, or
repairs, or for the purpose of placing upon the premises any ordinary "for sale"
signs, and during the ninety (90) day period prior to the expiration of this
Lease, to place upon the premises any usual or ordinary "for lease" signs and
exhibit the premises to prospective tenants at reasonable hours, all without any
abatement of rent and without liability to Tenant for any injury or
inconvenience to or interference with Tenant's business, quiet enjoyment of the
premises, or any other loss occasioned thereby, except for Landlord's gross
negligence or willful misconduct. Landlord's
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rights of entry as set forth in this paragraph shall be subject to the
reasonable security regulations of Tenant and to the requirement that Landlord
shall at all times act in a manner designed to minimize interference with
Tenant's business activities on the premises.
21. SUBORDINATION AND ATTORNMENT.
21.1 SUBORDINATION. Tenant agrees that this Lease may, at the
option of Landlord, be subject and subordinate to any mortgage, deed of trust,
ground lease or other instrument of security now of record or which is recorded
after the date of this Lease affecting the land and Building, or land or
Building, of which the premises form a part, and such subordination is hereby
made effective without any further act of Tenant; provided that such
subordination shall not be effective with respect to any mortgage, deed of
trust, ground lease or other instrument or security recorded after the date of
this Lease unless Landlord first obtains from the lender or ground lessor a
written agreement that provides in essence that as long as Tenant performs its
obligations under this Lease, no foreclosure of, deed given in lieu of
foreclosure, or sale under the encumbrance, and no steps or procedures taken
under the encumbrance, shall affect Tenant's rights under this Lease. Tenant
shall execute and deliver to Landlord any written agreement and any other
documents required by the lender to accomplish the purposes of this paragraph,
within ten (10) business days after delivery thereof to Tenant, and the failure
of Tenant to execute and return any such instruments shall constitute a default
hereunder unless Tenant in good faith disputes the terms of such agreement or
other document.
21.2 ATTORNMENT. Subject to the foregoing paragraph 21.1, Tenant
shall attorn to any third party purchasing or otherwise acquiring the premises
at any sale or other proceeding, or pursuant to the exercise of any rights,
powers or remedies under any mortgages or deeds of trust or ground leases now or
hereafter encumbering all or any part of the premises, as if such third party
had been named as Landlord under this Lease.
22. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS. Each party shall,
within ten (10) days following request by the other party, execute and deliver
any documents, including estoppel certificates, in the form presented by the
party making such request: (i) certifying that this Lease has not been modified
or, if modified, stating the nature of such modification and certifying that
this Lease, as so modified, is in full force and effect, (ii) stating the date
to which the rent and other charges are paid in advance, if at all, (iii)
acknowledging that there are not, to such party's knowledge, any uncured
defaults on the part of either party hereunder, or if there are uncured
defaults, stating the nature of such uncured defaults, and (iv) evidencing the
status of this Lease as may be required either by a lender making a loan to be
secured by a deed of trust or mortgage encumbering the premises or a purchaser
of the premises from Landlord. Tenant shall also, at the request of any lender
of Landlord, provide Landlord with a letter certifying that Tenant's current net
worth is in excess of an amount specified by Tenant. A party's failure to
deliver any such documents within fourteen (14) days following receipt of such
request shall be an Event of Default under this Lease.
23. NOTICES. Any notice, approval, request, demand or consent
(collectively "notice") required or desired to be given under this Lease shall
be in writing and shall be personally served or delivered by United States mail,
registered or certified, postage prepaid, and addressed to the party to be
served at the last address given by that party to the other party under
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the provisions of this paragraph. At the date of execution of this Lease, the
addresses of Landlord and Tenant are as set forth below:
Landlord: California Pacific
Commercial Corporation
2200 Sand Hill Road, Suite 230
Menlo Park, CA 94025
Attn: Dan McGanney III, President
Tenant: Clontech Laboratories, Inc.
1020 East Meadow Circle
Palo Alto, CA
Attn: Pam Fong
With a Copy to: Brian C. Cunningham, Esq.
Cooley Godward Castro Huddleson & Tatum
5 Palo Alto Square, Suite 400
Palo Alto, CA 94306
Any notice delivered by mail pursuant to this paragraph shall be deemed to have
been delivered three (3) days after the posted date of mailing.
24. WAIVER. The waiver by either party of any breach of any term,
covenant, or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rental so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent. No term, covenant or condition shall be deemed to have
been waived by either party unless such waiver is in writing and signed by the
party making such waiver.
25. NO ACCORD AND SATISFACTION. No payment by Tenant, or receipt by
Landlord, or an amount which is less than the full amount of rent and all other
sums payable by Tenant hereunder at such time shall be deemed to be other than
on account of (a) the earliest of such other sums due and payable, and
thereafter (b) the earliest Base Rent due and payable hereunder. No endorsement
or statement on any check or any letter accompanying any payment of rent or such
other sums shall be deemed an accord and satisfaction. Landlord may accept any
such check or payment without prejudice to Landlord's right to receive payment
of the balance of such rent and/or other sums or to Landlord's right to pursue
any remedies to which Landlord may be entitled to recover such balance.
26. ATTORNEYS' FEES. If any action or proceeding at law or in equity, or
an arbitration proceeding (collectively an "action") shall be brought to recover
any rent under this Lease, or for or on account of any breach of or to enforce
or interpret any of the terms, covenants or conditions of this Lease, or for the
recovery of possession of the premises, the prevailing party shall be entitled
to recover from the other party as a part of such action, or in a separate
action
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brought for that purpose, its reasonable attorneys' fees and costs and expenses
incurred in connection with the prosecution or defense of such action.
"Prevailing party" within the meaning of this paragraph shall include, without
limitation, a party who brings an action against the other after the other is in
breach or default, if such action is dismissed upon the other's payment of the
sums allegedly due for performance of the covenants allegedly breached, or if
the party commencing such action obtains substantially the relief sought by it
in such action, whether or not such action proceeds to a final judgment or
determination.
27. SURRENDER. Tenant shall, upon expiration or sooner termination of
this Lease, surrender the premises to Landlord in the same condition as existed
on the date Tenant originally took possession thereof (reasonable wear and tear
and losses due to casualty and condemnation excepted) with all interior walls
cleaned, all holes in walls repaired, all carpets cleaned, all HVAC equipment in
operating order and in good repair, and all floors cleaned and waxed, all to the
reasonable satisfaction of Landlord. Tenant shall at such time also surrender
to Landlord such alterations (as defined in paragraph 8) as Landlord does not
require Tenant to remove in accordance with paragraph 8.6 above. Tenant, on or
before the expiration or sooner termination of this Lease, shall remove all of
its personal property and trade fixtures from the premises, and all property not
so removed shall be deemed abandoned by Tenant. Tenant shall be liable to
Landlord for costs of removal of any such abandoned trade fixtures or equipment
of Tenant, or of any alterations Tenant fails to remove if so required by
Landlord, together with the cost of returning the premises to its condition as
of the date Tenant originally took possession thereof, and the transportation
and storage costs of such items. If the premises are not so surrendered at the
expiration or sooner termination of this Lease, Tenant shall indemnify Landlord
against loss or liability resulting from delay by Tenant in so surrendering the
premises, including without limitation, any claims made by any succeeding tenant
founded on such delay, losses to Landlord due to lost opportunities to lease to
succeeding tenants, and attorneys' fees and costs. All keys to the premises or
any part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the lease term.
28. HOLDING OVER. Unless Tenant exercises in a timely manner its option
to extend the term, this Lease shall terminate without further notice at the
expiration of the initial lease term. Any holding over by Tenant after
expiration shall not constitute a renewal or extension of the lease term or give
Tenant any rights in or to the premises unless otherwise expressly provided in
this Lease. Any holding over after the expiration with the express written
consent of Landlord shall be construed to be a tenancy from month to month, at
one hundred fifty percent (150%) of the monthly Base Rent for the last month of
the lease term, unless otherwise agreed in writing by both Landlord and Tenant,
and shall otherwise be on the terms and conditions herein specified insofar as
applicable, unless otherwise mutually agreed in writing by the parties.
29. TRANSFER OF PREMISES BY LANDLORD. The term "Landlord" as used in
this Lease, so far as the covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner at the time in
question of the fee title to the premises. In the event of any transfer of such
fee title, the Landlord herein named (and in case of any subsequent transfer or
conveyance, the then grantor) shall after the date of such transfer or
conveyance by automatically freed and relieved of all liability with respect to
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed; provided that any funds in the hands of
Landlord or the then grantor at the time of
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such transfer in which Tenant has an interest shall be turned over to the
grantee. The covenants and obligations contained in this Lease on the part of
Landlord shall, subject to the foregoing, be binding upon each Landlord
hereunder only during his or its respective period of ownership.
30. GENERAL PROVISIONS.
30.1 ENTIRE AGREEMENT. This instrument including the Exhibits
attached hereto contains all of the agreements and conditions made between the
parties hereto and may not be modified orally or in any manner other than by an
agreement in writing signed by all of the parties hereto or their respective
successors in interest. Any executed copy of this Lease shall be deemed an
original for all purposes.
30.2 TIME. Time is of the essence with respect to the performance
of each and every provision of this Lease in which time of performance is a
factor. All references to days contained in this Lease shall be deemed to mean
calendar days unless otherwise specifically stated.
30.3 CAPTIONS. The captions and headings of the numbered paragraphs
of this Lease are inserted solely for the convenience of the parties hereto, and
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
30.4 CALIFORNIA LAW. This Lease shall be construed and interpreted
in accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to its
fair meaning and not strictly for or against either Landlord or Tenant, and
without regard to which party prepared this Lease.
30.5 GENDER; SINGULAR AND PLURAL. When required by the context of
this Lease, the neuter includes the masculine, the feminine, a partnership, a
corporation or a joint venture, and the singular shall include the plural.
30.6 PARTIAL INVALIDITY. If any provision of this Lease is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions hereof shall nonetheless continue in full force and
effect and shall in no way be affected, impaired, or invalidated thereby.
30.7 NO WARRANTIES. Any agreements, warranties or representations
not expressly contained herein shall not bind either Landlord or Tenant, and
Landlord and Tenant expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not expressly
contained in this Lease.
30.8 JOINT AND SEVERAL LIABILITY. If Landlord or Tenant is more
than one person or entity, each such person or entity shall be jointly and
severally liable for the obligations of Landlord or Tenant, respectively,
hereunder.
30.9 SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, shall apply to and bind
the heirs, executors, administrators, assigns, and any other person or entity
succeeding lawfully, and pursuant to the provisions of this Lease, to the rights
or obligations of either of the parties hereto.
29.
<PAGE>
30.10 RULES AND REGULATIONS. Landlord may from time to time
promulgate reasonable rules and regulations for the use, safety, care, and
cleanliness of the premises, and the preservation of good order thereon. Such
rules and regulations shall be binding upon Tenant upon delivery of a copy
thereof to Tenant, and Tenant shall abide by all such rules and regulations. If
there is a conflict between such rules and regulations and any of the provisions
of this Lease, the provisions of this Lease shall prevail.
30.11 AUTHORITY. The parties hereby represent and warrant that they
have all necessary power and authority to execute and deliver this Lease on
behalf of Landlord and Tenant, respectively.
30.12 MEMORANDUM OF LEASE. Either party may record a short form
memorandum of this Lease.
30.13 MERGER. The voluntary or other surrender of this Lease, or a
mutual cancellation thereof, shall not work an automatic merger, but shall, at
the sole option of Landlord, either terminate all or any existing subleases or
subtenancies, or operate as an assignment to Landlord of any or all of such
subleases or subtenancies.
30.14 REAL ESTATE BROKERS. Each party represents that it has not had
any dealings with any real estate broker, finder or other person with respect to
this Lease other than Cornish & Carey Commercial, whose leasing commission shall
be paid by Landlord in accordance with its agreement with Cornish & Carey dated
September 12, 1994, and each party shall hold harmless the other party from all
damages, expenses, and liabilities resulting from any claims that may be
asserted against the other party by any broker, finder or other person with whom
the other party has dealt.
30.15 LIMITATION ON LIABILITY. If Tenant obtains a money judgment
against Landlord resulting from any default or other claim arising under this
Lease, such judgment shall be satisfied only out of the rents, profits and
income received by Landlord with respect to its right, title and interest in the
premises. No other real, personal or mixed property of Landlord shall be
subject to levy to satisfy any such judgment and Landlord shall have no personal
liability under this Lease.
30.16 QUIET ENJOYMENT. Landlord agrees to and shall in the
commencement of this Lease place Tenant in quiet possession of the premises and
shall secure it in the quiet possession thereof against all persons lawfully
claiming the same during the lease term.
31. INITIAL IMPROVEMENTS TO PREMISES.
31.1 LANDLORD'S IMPROVEMENTS. Prior to the Delivery Date, Landlord
shall at its expense demolish the existing improvements and remove all asbestos
from the Building. Prior to the Commencement Date, Landlord shall: (i) install
a new roof on the Building; and (ii) undertake such structural repairs as are
necessary to bring the Building in compliance with applicable seismic codes as
of the date of such repairs. Landlord shall bear the expense of installing the
new roof and undertaking such structural repairs for seismic compliance up to a
maximum of the lesser of: (i) cost for such work in the initial bid which
Landlord notifies Tenant is acceptable to Landlord for the same; or (ii) the
cost for such work (excluding any additional
30.
<PAGE>
improvements requested by Tenant) in the bid finally accepted by Landlord for
the same. Landlord's share of such costs is referred to herein as the "Base Bid
Amounts." The parties contemplate that at the request of Tenant additional
improvements such as skylights and windows will be undertaken to the roof and
the exterior walls of the building as part of the work being performed by
Landlord. Tenant shall submit completed plans and specifications for its
proposed additional improvements no later than October 10, 1994. All such work
will be performed by Landlord through its contractor and the incremental cost of
such work shall be borne by Tenant. Landlord shall consult with Tenant
regarding the amount of the final bids it proposes to accept before accepting
the same. Landlord shall, at Tenant's request, cause its contractor to obtain
additional bids from subcontractors for the work being subcontracted up to a
maximum of six (6) bids. Tenant may designate specific subcontractors from
which Landlord's contractor will obtain additional bids provided that such
subcontractors are acceptable to Landlord and its contractor. All bids obtained
for such work shall price separately the cost of the additional improvements
requested by Tenant. Landlord shall not accept any bid other than the lowest
bid without the consent of Tenant. Tenant shall have the right upon
notification of the bid amounts for particular work to notify Landlord within
three (3) business days that Tenant elects not to have any additional
improvements undertaken at Tenant's expense. The Tenant Improvement Allowance
provided in paragraph 31.3 shall be reduced by an amount equal to the difference
between the final cost of such work and the Base Bid Amounts.
31.2 TENANT'S IMPROVEMENTS. Tenant shall make all other,
improvements to the premises. Tenant's improvements shall include all work to
the premises, including without limitation electrical, heating, ventilation and
air conditioning, partitions, ceilings, doors, sprinkler alterations, lighting,
floor coverings, window coverings, telephone system and all finishes
(collectively, the "Improvements"). The provisions of paragraph 8 shall comply
with respect to all such work and the Improvements.
Tenant shall have all its work done by or through Vance M.
Brown & Sons, Inc. ("Brown") as its general contractor, provided that the bid
received from Brown is competitive with bids received from other licensed
contractors approved by Landlord. Tenant may use another licensed contractor in
the event that Brown is not competitive on the following conditions: (i) such
contractor and the terms of the construction contract are approved by Landlord;
(ii) in no event shall a contractor other than Brown construct the Required
Improvements; and (iii) such contractor provide a full payment and performance
bond naming both Landlord and Tenant as insured. All contracts for improvement
and alteration shall be between Tenant and its contractor, and no contractor or
other person shall be a third party beneficiary of any provision of this Lease.
All Improvements, except unattached movable business fixtures
and those trade fixtures identified in Exhibit C, shall become the property of
Landlord and shall remain upon and be surrendered with the premises.
31.3 IMPROVEMENT ALLOWANCE. Landlord shall provide Tenant with a
tenant improvement allowance in the amount of One Million Two Hundred Ninety
Three Thousand Six Hundred Dollars ($1,293,600) (the "Tenant Improvement
Allowance"). Tenant shall use said Tenant Improvement Allowance exclusively for
the construction of the Improvements. No portion of the Tenant Improvement
Allowance may be used for furnishings and/or trade fixtures
31.
<PAGE>
that are removable by Tenant upon the expiration of the term of the Lease. In
the event the cost of the Improvements exceeds the Tenant Improvement Allowance,
the excess shall be paid by Tenant ("Tenant's Contribution"). The Tenant
Improvement Allowance shall be used exclusively for the purposes set forth above
and any unused portion thereof shall not be paid or otherwise credited to
Tenant.
Prior to commencement of construction, Tenant shall submit an
estimate of the cost of all of the Improvements, including a copy of the
contractor's bid, all in form acceptable to Landlord. Landlord shall have the
right to verify the accuracy of the numbers set forth therein to Landlord's
reasonable satisfaction.
Landlord shall pay Tenant's contractor the Tenant Improvement
Allowance in installments equal to its pro rata share of the amount of the
contractor's invoice as construction progresses and after Landlord's inspection
and verification that the work to be paid for has been completed in a
satisfactory manner. Landlord's pro rata share shall be a fraction, the
numerator of which is the amount of the Tenant Improvement Allowance and the
denominator of which is the total cost of the Improvements. Landlord shall
issue joint checks payable to Tenant and the contractor. Tenant shall provide
evidence satisfactory to Landlord that it is contemporaneously paying its share
of the invoice.
32. RIGHT OF FIRST OPPORTUNITY.
32.1 SALE OF PREMISES. In the event Landlord desires to sell the
premises, before entering into an agreement to sell or exchange the same,
Landlord shall notify Tenant of its desire to sell the premises and the price
and basic terms Landlord is asking. If, within five (5) business days of
receipt of said notice, Tenant gives to Landlord written notice of its interest
in purchasing the premises at the price and upon the terms contained in
Landlord's notice to Tenant, Landlord and Tenant shall in good faith attempt to
negotiate a legally binding agreement to carry out their previously expressed
intent. If Tenant fails to respond to said notice within said five (5) day
period, or if Landlord and Tenant fail to enter into a written agreement for
such a purchase and sale within ten (10) business days after Tenant's notice
expressing its interest in purchasing the premises, the provisions of this
paragraph 32.1 shall be deemed null and void and Landlord shall be free to sell
or exchange the premises to anyone else upon the same or any other terms and
without any further obligation to Tenant, whether or not the terms of such sale
are more or less favorable than those offered to Tenant.
32.2 LEASE OF ADJACENT PARCEL. While Landlord owns both the
Premises and the Adjacent Parcel, Tenant shall have a one-time right of first
opportunity to lease the adjacent parcel of real estate commonly known as
1034-36 East Meadow Circle, Palo Alto, California (the "Adjacent Parcel") on the
terms set forth below. The parties acknowledge that Landlord currently leases
the Adjacent Parcel to Space Systems/Loral, Inc. ("Loral"). Landlord shall not
enter into a new lease for the Adjacent Parcel with any person other than Loral
in the event that the current Loral lease expires and Loral does not exercise
its option to renew without first offering the Adjacent Parcel to Tenant as
follows. Before entering into a lease for the Adjacent Parcel with any person
other than Loral, Landlord shall notify Tenant of its desire to lease the
Adjacent Parcel and the rent and basic terms Landlord is asking. If, within
five (5) business days of receipt of said notice, Tenant gives to Landlord
written notice of its interest in leasing the
32.
<PAGE>
Adjacent Parcel at the rent and upon the terms contained in Landlord's notice to
Tenant, Landlord and Tenant shall in good faith attempt to negotiate a legally
binding lease to carry out their previously expressed intent. If Tenant fails
to respond to said notice within said five (5) business day period, or if
Landlord and Tenant fail to enter into a written lease for the Adjacent Parcel
within ten (10) business days after Tenant's notice expressing its interest in
leasing the Adjacent Parcel, the provisions of this paragraph 32.2 shall be
deemed null and void, and Landlord shall be free to lease the Adjacent Parcel to
anyone else upon the same or any other terms and without any further obligation
to Tenant, whether or not the terms of such lease are more or less favorable
than those offered to Tenant. Landlord shall have the right to amend, modify or
otherwise execute a new lease with Loral without being required to first offer
the Adjacent Parcel to Tenant.
32.3 RIGHTS NOT ASSIGNABLE. Each right granted to Tenant in this
paragraph 32 is personal to Clontech, and neither of said rights is assignable
by Clontech either as a part of an assignment of this Lease or separately or
apart therefrom, and no right may be separated from this Lease in any manner by
reservation or otherwise; provided that said right may be assigned by Clontech
as part of the assignment of this Lease by Clontech (a) to a parent, subsidiary,
affiliate, division, or corporation controlling, controlled by or under common
control with Clontech, or (b) to a successor corporation of Clontech by merger,
consolidation or nonbankruptcy reorganization, or to a successor corporation
which purchases all or substantially all of the assets of Clontech, provided
that in each such case the assignee or successor entity expressly assumes and
agrees to perform for the benefit of Landlord all of the obligations of Tenant
hereunder.
32.4 ADDITIONAL LIMITATION ON RIGHTS. The rights granted to Tenant
in this paragraph 32 may be exercised by Tenant only if Tenant is not in default
under the terms of this Lease and the time of the exercise of such rights.
33. CONDITION SUBSEQUENT. Tenant shall have thirty (30) days from the
date of this Lease (the "Inspection Period") in which to complete its physical
and environmental inspection of the premises. Prior to expiration of the
Inspection Period, Tenant may notify Landlord that Tenant does not approve the
physical condition of the premises. If Tenant timely gives such notice, this
Lease shall terminate as of the date of Landlord's receipt of such notice and
Landlord shall promptly return to Tenant the Deposit provided that Tenant has
not otherwise defaulted hereunder. If Tenant does not timely give such notice,
this Lease shall continue in full force and effect. Tenant shall deliver to
Landlord copies of all reports regarding the premises.
33.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
dates specified below immediately adjacent to their respective signatures.
Delivery of this Lease to Landlord, duly executed by Tenant, constitutes an
offer by Tenant to lease the premises as herein set forth, and under no
circumstances shall such delivery be deemed to create an option or reservation
to lease the premises for the benefit of Tenant. This Lease shall only become
effective and binding upon execution of this Lease by Landlord and delivery of a
signed copy to Tenant.
"Landlord"
CALIFORNIA PACIFIC COMMERCIAL
CORPORATION, a California corporation
By /s/ Carlota Alfelor
----------------------------------
Carlota Alfelor, Secretary
Dated: September 15, 1994 By /s/ Daniel J. McGanney, III
----------------------------------
Daniel J. McGanney, III
President
"Tenant"
CLONTECH LABORATORIES, INC.,
a California corporation
Dated: September 14, 1994 By: /s/ Ken Fong
----------------------------------
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Description of Premises
Exhibit B Letter regarding Hazardous Substances
Exhibit C Description of Fixtures
</TABLE>
34.
<PAGE>
PROPERTY DESCRIPTION 1020 EAST MEADOW CIRCLE
PALO ALTO, CALIFORNIA
Parcel Three, Parcel Map Recorded
April 22, 1974, Map Book 338 Page 4
Santa Clara County Records
EXHIBIT "A"
<PAGE>
[LOGO] UNITED. SOIL ENGINEERING, INC.
Soil, Foundation and Geological Engineers
3476 EDWARD AVENUE, SANTA CLARA, CALIFORNIA 95054 (408) 988-2990
File No. 94-4070-SEA
July 20, 1994
Vance Brown and Sons, Inc.
2747 Park Boulevard
Palo Alto, CA 94306
Attention: Mr. Dan Cunningham
Subject: Existing R&D Building
1020 East Meadow Circle
Building 24
Palo Alto, California
ADDENDUM TO SUMMARY Of SOIL AND
GROUND WATER INVESTIGATION REPORT
Dear Mr. Cunningham:
Per our conversation, we are presenting herein our review of a soil and
ground water investigation report for the existing Building 24 located at
1020 East Meadow Circle in Palo Alto, California.
A soil and ground water investigation report was prepared by H2M Group of
Totowa, New Jersey dated January, 1994, for the existing office building
complex 1010, 1020, and 1011 East Meadow Circle in Palo Alto, California.
According to the report, ground water flow direction is eastward. The
temporary monitoring wells, MW-5, and MW-6 were located adjacent to Building
24. The ground water sample extracted from the temporary monitoring wells
MW-5 and MW-6 were tested for traces of priority pollutants, metals, volatile
organic compounds, and semi-volatile organic compounds.
The following compounds were present in the ground water samples extracted from
temporary monitoring wells MW-5 and MW-6.
EXHIBIT "B"
<PAGE>
REMOVABLE TRADE FIXTURES
Chemical hoods
Biohazard hoods
Environmental chambers
Cold rooms
Autoclaves
Steam generator(s)
Centrifuges
Water purification system(s) (but not including the plumber in DI water system)
Glassware washers
Cage washers
Uninterruptable power supply UPS system
Office furniture
Back-up generator
Equipment monitoring devices
Telephone switch, telephone sets and voicemail system
Kitchen appliances and equipment (e.g., refrigerator, microwave oven)
- --------------------
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES. THIS LEASE ("Lease"), dated for reference purposes only,
March 16, 1994, is made by and between L. J. VALENTE ("Lessor") and CLONTECH
LABORATORIES, INC., a California Corporation ("Lessee") (collectively, the
"Parties," or individually, a "Party").
1.2 PREMISES. That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 4062 Fabian Way, Palo Alto, CA, located in the
County of Santa Clara, State of California, and generally described as all the
land and improvements thereon, consisting of a building of approximately 10,800
square feet with appurtenances being identified as APN 127-15-12.
1.3 TERM. Five (5) years and ___ months ("Original Term") commencing
April 1, 1994 ("Commencement Date") and ending March 31, 1999 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION. N/A ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT. $6,372.00 per month ("Base Rent"), payable on the first
(1st) day of each month commencing April 1, 1994. (See Paragraph 4 for further
provisions.)
/X/ If this box is checked, there are provisions in this Lease
for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION. $6,372.00 as Base Rent for the
period
_____________________________________________________________________________.
1.7 SECURITY DEPOSIT. $6,372.00 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE. Research and development in biotechnology, light
manufacturing and other related activities. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY. Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS. The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes.
_______________________________________________________________ represents
/ / Lessor exclusively ("Lessor's Broker");
/ / box Lessor and Lessee; and
1.
<PAGE>
_______________________________________________________________ represents
/ / Lessee exclusively ("Lessee's Broker");
/ / box Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ______________________________________________ ("Guarantor").
(See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 47(A) through 47(F) and Exhibit 1, all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating and loading
doors, if any, in the Premises, other than those constructed by Lessee, shall be
in good operating condition on the Commencement Date. If a non-compliance with
said warranty exists as of the Commencement Date, Lessor shall, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use of which Lessee will put the Premises or to any
Alternations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall except as otherwise provided in this Lease, promptly after receipt or
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future
2.
<PAGE>
suitability of the Premises for Lessee's intended use, (b) that Lessee has made
such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to Lessee's occupancy of
the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any
of Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupants of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified by the Commencement Date. Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee within sixty (60) days after the
Commencement Date. Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term
3.
<PAGE>
hereof which is less than one (1) full calendar month shall be prorated based
upon the actual number of days of the calendar month involved. Payment of Base
Rent and other charges shall be made to Lessor at its address stated herein or
to such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT.
Lessee shall deposit with Lessor upon execution hereof the Security Deposit
set forth in Paragraph 1.7 as security for Lessee's faithful performance of
Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or
other rent or charges due hereunder, or otherwise Defaults under this Lease (as
defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Lessor or to
reimburse or compensate Lessor for any liability, cost, expense, loss or damage
(including attorneys' fee) which Lessor may suffer or incur by reason thereof.
If Lessor uses or applies all or any portion of said Security Deposit. Lessee
shall within ten (10) days after written request therefor deposit moneys with
Lessor sufficient to restore said Security Deposit to the full amount required
by this Lease. Any time the Base Rent increases during the term of this Lease,
Lessee shall, upon written request from Lessor, deposit additional moneys with
Lessor sufficient to maintain the same ration between the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner than creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee. Lessees assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal,
4.
<PAGE>
transportation, spill, release or effect, either by itself or in combination
with other materials expected to be on the Premises, is either: (i) potentially
injurious to the public health, safety or welfare, the environment or the
Premises, (ii) regulated or monitored by any governmental authority, or (iii) a
basis for liability of Lessor to any governmental agency of third party under
any applicable statute or common law theory. Hazardous Substance shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products, by-products or fractions thereof. Lessee shall not engage in any
activity in, on or about the Premises which constitutes a Reportable Use (as
hereinafter defined) of Hazardous Substances without the express prior written
consent of Lessor and compliance in a timely manner (at Lessee's sole cost and
expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable
Use" shall mean (i) the installation or use of any above or below ground storage
tank, (ii) the generation, possession, storage, use, transportation, or disposal
of a Hazardous Substance that requires permit for, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its consent
to the use or presence of any Hazardous Substance, activity or storage tank by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Users involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include but
not be limited to
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the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultant's and attorney's fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by Lessor
in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy. Lessee shall, within five (5) days after receipt
of Lessor's written request, provide Lessor with copies of all documents and
information, including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
6.
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7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.) 7.2
(Lessors obligations to repair), 9 (damage and destruction), and 14
(condemnation). Lessee shall, at Lessee's sole cost and expense and at all
times keep the Premises and every part thereof in good order, condition and
repair structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roots, floors, windows, doors, plate
glass, skylights landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through the
plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take
all investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have
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no obligation, in any manner whatsoever, to repair and maintain the Premises,
the improvements located thereon, or the equipment therein, whether structural
or non structural, all of which obligations are intended to be that of the
Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the
terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon:(i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the
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Premises, which claims are or may be secured by any mechanics' or materialmen's
lien against the Premises or any interest therein. Lessee shall give Lessor not
less than ten (10) days' notice prior to the commencement of any work in, on or
about the premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend and protect itself, Lessor and the Premises
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or the
Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the amount
such contest lien claim or demand, indemnifying Lessor against liability for the
same, as required by law for the holding of the Premises free from the effect of
such lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorney's fees and costs in participating in such action if Lessor shall decide
it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
Property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
9.
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8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee
is the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee or Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under the Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvement involved, such latter amount is less than full
replacement costs. If Lessors is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the
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enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the event
of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee or Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
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8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall cause to be delivered to Lessor certified copies
of policies of such insurance or certificates evidencing the existence and
amounts of such insurance with the insureds and loss payable clauses as required
by this Lease. No such policy shall be cancelable or subject to modification
except after thirty (30) days prior written notice to Lessor. Lessee shall at
least thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee or lessor ("Waiving Party") each hereby release and relieve the
other, and waive their entire right to recover damages (whether in contract or
in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warrants, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage result from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of
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whether the cause of such damage or injury or the means of repairing the same is
accessible or not. Lessor shall not be liable for any damages arising from any
act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction and depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the
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improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13). Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force or effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
effects to give such notice of Lessor's intention to terminate this lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement from
Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible and the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease
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effective sixty (60) days following the date of occurrence of such damage by
giving written notice to Lessee of Lessor's election to do so within thirty (30)
days after the date of occurrence of such damage. Provided, however, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, within twenty (20) days
following the occurrence of the damage, or before the expiration of the time
provided in such option for its exercise, whichever is earlier ("Exercise
Period"), (i) exercising such option and (ii) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as
soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option and provide such funds or
assurance during said Exercise Period, then Lessor may at Lessor's option
terminate this Lease as of the expiration of the Exercise Price, notwithstanding
any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage
- - Insured), whether or not Lessor or Lessee repairs or restores the Premises,
the Base Rent, Real Property Taxes, insurance premiums, and other charges, if
any, payable by Lessee hereunder for the period during which such damage, its
repair or the restoration continues (not to exceed the period for which rental
value insurance is required under Paragraph 8.3(b)), shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
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reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this lease is in effect, and
lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
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(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserve the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
is a part, Lessor's right to rent or other income therefrom, and/or lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or the improvements thereon, the execution of this
Lease, or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or
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elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property or, at Lessor's option,
as provided in Paragraph 10.1(b).
11. UTILITIES.
Lessee shall pay for all water, gas, heat, light, power, telephone, trash
disposal and other utilities and service supplied to the Premises, together with
any taxes thereon. If any such services are not separately metered to Lessee,
Lessee shall pay a reasonable proportion, to be determined by Lessor, of all
charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this lease or at the time of the most recent assignment to which
lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessary of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
value, if disputed by Lessee, Lessee shall pay the amount
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set forth in Lessor's Notice, with any overpayment credited against the next
installment(s) of Base Rent coming due, and any underpayment for the period
retroactively to the effective date of the adjustment being due and payable
immediately upon the determination thereof. Further, in the event of such
Breach and market value adjustment, (i) the purchase price of any option to
purchase the Premises held by Lessee shall be subject to similar adjustment to
the then fair market value (without the Lease being considered an encumbrance or
any deduction for depreciation or obsolescence, and considering the Premises at
its highest and best use and in good condition), or one hundred ten percent
(110%) of the price previously in effect, whichever is greater, (ii) any
index-oriented rental or price adjustment formulas contained in this Lease shall
be adjusted to require that the base index be determined with reference to the
index applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new market rental bears to the Base Rent in effect
immediately prior to the market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS ASSIGNMENT TO SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
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(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the currently monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated herein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice
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from or claim from Lessee to the contrary. Lessee shall have no right or claim
against said sublessee, or, until the Breach has been cured, against Lessor, for
any such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
conditions or rules applicable to Lessee under this Lease. A "Breach" is
defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
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(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect; and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
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13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of releting, including necessary renovation
and alteration of the Premises, reasonable attorneys' fees, and that portion of
the leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
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(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Paragraph 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receive to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee with five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge
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is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION.
If the Premises or any portion thereof are taken under the power of eminent
domain or sold under the threat of the exercise of said power (all of which are
herein called "condemnation"), this Lease shall terminate as to the part so
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of the floor area of the
Premises, or more than twenty-five percent (25%) of the land area not occupied
by any building, is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the building located on the Premises. No reduction of Base Rent shall occur
if the only portion of the Premises taken is land on which there is no building.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease
is not terminated by reason of such condemnation, Lessor shall to the extent of
its net severance damages received, over and above the legal and other expenses
incurred by Lessor in the condemnation matter, repair any damage to the Premises
caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
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15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $_______________) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
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16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past
three (3) years. All such financial statements shall be received by Lessor and
such lender or purchaser in confidence and shall be used only for the purposes
herein set forth.
17. LESSOR'S LIABILITY.
The term "Lessor" as used herein shall mean the owner or owners at the time
in question of the fee title to the Premises, or, if this is a sublease, of the
Lessee's interest in the prior lease. In the event of a transfer of Lessor's
title or interest in the Premises or in this Lease, Lessor shall deliver to the
transferee or assignee (in cash or by credit) any unused Security Deposit held
by Lessor at the time of such transfer or assignment. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon
the Lessor as hereinabove defined.
18. SEVERABILITY.
The invalidity of any provision of this Lease, as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS.
Any monetary payment due Lessor hereunder, other than late charges, not
received by Lessor within thirty (30) days following the date on which it was
due, shall bear interest from the thirty-first (31st) day after it was due at
the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in
addition to the late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE.
Time is of the essence with respect to the performance of all obligations
to be performed or observed by the Parties under this Lease.
21. RENT DEFINED.
All monetary obligations of Lessee to Lessor under the terms of this Lease
are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER.
This Lease contains all agreements between the Parties with respect to any
matter mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective. Lessor and Lessee each represents and
warrants to the Brokers that it has made, and is
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relying solely upon, its own investigation as to the nature, quality, character
and financial responsibility of the other Party to this Lease and as to the
nature, quality and character of the Premises. Brokers have no responsibility
with respect thereto or with respect to any default or breach hereof by either
Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may be
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. WAIVERS.
No waiver by Lessor of the Default or Breach of any term, covenant or
condition hereof by Lessee, shall be deemed a waiver of any other term, covenant
or condition hereof, or of any subsequent Default or Breach by Lessee of the
same or of any other term, covenant or condition hereof. Lessor's consent to,
or approval of, any act shall not be deemed to render unnecessary the obtaining
of Lessor's consent to, or approval of, any subsequent or similar act by Lessee,
or be construed as the basis of an estoppel to enforce the provision or
provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent as accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
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25. RECORDING.
Either Lessor or Lessee shall, upon request of the other, execute,
acknowledge and deliver to the other a short form memorandum of this Lease for
recording purposes. The Party requesting recordation shall be responsible for
payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER.
Lessee has no right to retain possession of the Premises or any part
thereof beyond the expiration or earlier termination of this Lease.
27. CUMULATIVE REMEDIES.
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS.
All provisions of this Lease to be observed or performed by Lessee are both
covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW.
This Lease shall be binding upon the parties, their personal
representatives, successors and assigns and be governed by the laws of the State
in which the Premises are located. Any litigation between the Parties hereto
concerning this Lease shall be initiated in the county in which the Premises are
located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed or trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by
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reason of a foreclosure of a Security Device, and that in the event of such
foreclosure, such new owner shall not: (i) be liable for any act or omission of
any prior lessor or with respect to events occurring prior to acquisition of
ownership, (ii) be subject to any offsets or defenses which Lessee might have
against any prior lessor, or (iii) be bound by prepayment of more than one (1)
month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES.
If any Party or Broker brings an action or proceeding to enforce the terms
hereof or declare rights hereunder, the Prevailing Party (as hereafter defined)
or Broker in any such proceeding, action, or appeal thereon, shall be entitled
to reasonable attorney's fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorney's fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorney's fees reasonably
incurred. Lessor shall be entitled to attorney's fees, costs and expenses
incurred in the preparation and service of notices of Default and consultations
in connection therewith, whether or not a legal action is subsequently commenced
in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS.
Lessor and Lessor's agents shall have the right to enter the Premises at
any time, in the case of an emergency, and otherwise at reasonable times for the
purpose of showing the same to prospective purchasers, lenders, or lessees, and
making such alterations, repairs, improvements or additions to the Premises or
to the building of which they are a part, as Lessor may reasonably deem
necessary. Lessor may at any time place on or about the Premises or building
any ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises any
ordinary "For Lease" signs. All such activities of Lessor shall be without
abatement of rent or liability to Lessee.
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33. AUCTIONS.
Lessee shall not conduct, nor permit to be conducted, either voluntarily or
involuntarily, any auction upon the Premises without first having obtained
Lessor's prior written consent. Notwithstanding anything to the contrary in
this Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. SIGNS.
Lessee shall not place any sign upon the Premises, except that Lessee may,
with Lessor's prior written consent, install (but not on the roof) such signs as
are reasonably required to advertise Lessee's own business. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves all
rights to the use of the roof and the right to install, and all revenues from
the installation of, such advertising signs on the Premises, including the roof,
as do not unreasonably interfere with the conduct of Lessee's business.
35. TERMINATION; MERGER.
Unless specifically stated otherwise in writing by Lessor, the voluntary or
other surrender of this Lease by Lessee, the mutual termination or cancellation
hereof by Lessor for Breach by Lessee, shall automatically terminate any
sublease or lesser estate in the Premises; provided, however, Lessor shall, in
the event of any such surrender, termination or cancellation, have the option to
continue any one or all of any existing subtenancies. Lessor's failure within
ten (10) days following any such event to make a written election to the
contrary by written notice to the holder of any such lesser interest, shall
constitute Lessor's election to have such event constitute the termination of
such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects' attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that the cost
Lessor will incur in considering and responding to Lessee's request. Except as
otherwise provided, any unused portion of said deposit shall be refunded to
Lessee without interest. Lessor's consent to any act, assignment of this Lease
or subletting of the Premises by Lessee shall not constitute an acknowledgement
that no Default or Breach by Lessee of this Lease exists, nor shall such consent
be deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
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(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including in the case of a corporate Guarantor, a certified copy of a resolution
of its board of directors authorizing the making of such guaranty, together with
a certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION.
Upon payment by Lessee of the rent for the Premises and the observance and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITIONS. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
32.
<PAGE>
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannon be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the notice Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time the Lessee is
in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee
three (3) or more notices of Default under Paragraph 13.1, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercise shall
not be extended or enlarged by reason of Lessee's inability to exercise an
option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS.
If the Premises are part of a group of buildings controlled by Lessor,
Lessee agrees that it will abide by, keep and observe all reasonable rules and
regulations which Lessor may make from time to time for the management, safety,
care, and cleanliness of the grounds, the parking and unloading of vehicles and
the preservation of good order, as well as for the convenience of other
occupants or tenants of such other buildings and their invitees, and that Lessee
will pay its fair share of common expenses incurred in connection therewith.
41. SECURITY MEASURES.
Lessee hereby acknowledges that the rental payable to Lessor hereunder does
not include the cost of guard service or other security measures, and that
Lessor shall have no obligation whatsoever to provide same. Lessee assumes all
responsibility for the protection of the Premises, Lessee, its agents and
invitees and their property from the acts of third parties.
42. RESERVATIONS.
Lessor reserves to itself the right, from time to time, to grant, without
the consent or joinder of Lessor, such easements, rights and dedications that
Lessor deems necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights,
33.
<PAGE>
dedications, maps and restrictions do not unreasonably interfere with the use of
the Premises by Lessee. Lessee agrees to sign any documents reasonably
requested by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST.
If at any time a dispute shall arise as to any amount or sum of money to be
paid by one party to the other under the provisions hereof, the Party against
whom the obligation to pay the money is asserted shall have the right to make
payment "under protest" and such payment shall not be regarded as a voluntary
payment and there shall survive the right on the part of said party to institute
suit for recovery of such sum. If it shall be adjudged that there was no legal
obligation on the part of said Party to pay such sum or any part thereof, said
Party shall be entitled to recover such sum or so much thereof as it was not
legally required to pay under the provisions of this Lease.
44. AUTHORITY.
If either Party hereto is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on its behalf. If Lessee is a corporation, trust or partnership,
Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor
evidence satisfactory to Lessor of such authority.
45. CONFLICT.
Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER.
Preparation of this Lease by Lessor or Lessor's agent and submission of
same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS.
This Lease may be modified only in writing, signed by the Parties in
interest at the time of the modification. The parties shall amend this Lease
from time to time to reflect any adjustments that are made to the Base Rent or
other rent payable under this Lease. As long as they do not materially change
Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
34.
<PAGE>
48. MULTIPLE PARTIES.
Except as otherwise expressly provided herein, if more than one person or
entity is named herein as either Lessor or Lessee, the obligations of such
Multiple Parties shall be the joint and several responsibility of all persons or
entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSOR WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD
BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE
POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES.
NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY
IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE
STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Palo Alto, CA 94303
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on March 22, 1994
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by LESSOR:
L.J. Valente
- ----------------------------------------------------------
/s/ L.J. Valente
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By:
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Name Printed:
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Title:
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By:
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Name Printed:
---------------------------------------------
Title:
----------------------------------------------------
Address:
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- ----------------------------------------------------------
Tel. No. ( ) Fax No. ( )
-- -------------- -- ---------------
Executed at: Palo Alto, CA 94303
----------------------------------------------
on March 22, 1994
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by LESSEE:
Clontech Labs, Inc.
- ----------------------------------------------------------
- ----------------------------------------------------------
By: /s/ Pam Fong
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Name Printed: Pamela Fong
---------------------------------------------
Title: Financial Officer
----------------------------------------------------
By:
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Name Printed:
---------------------------------------------
Title:
----------------------------------------------------
Address:
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- ----------------------------------------------------------
Tel. No. ( ) Fax No. ( )
-- -------------- -- ---------------
35.
<PAGE>
COMMERCIAL LEASE
(GENERAL FORM)
1. PARTIES.
This Lease is made and entered into this 1st day of May, 1998 by and between
L. J. Valente (hereinafter referred to as "Landlord") and Clontech Laboratories,
Inc., A California Corporation (hereinafter referred to as "Tenant").
2. PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from landlord, on
the terms and conditions hereinafter set forth that certain real property and
the building and other improvements located thereon situated in the City of Palo
Alto, County of Santa Clara, State of CA, commonly known as 4074 Fabian Way and
described as all the land and improvements thereon, consisting of a building of
9,575 sq. ft. with appurtenances being identified as APN-127-15-013 (said real
property is hereinafter called the "Premises").
3. TERM.
The term of this Lease shall be for (5) years, commencing on May 1, 1998
and ending on April 31, 2003, unless sooner terminated as hereinafter provided.
4. RENT.
Tenant shall pay Landlord as rent for the Premises the following sums per
month, in advance on the first day of each month during the term of this Lease:
During the first _____________ year of the term of this Lease, the sum of
$9,575.00 (nine thousand five hundred seventy-five dollars) dollars per month
<TABLE>
<S><C>
During the first __________ year through the ___________ year of the term of this Lease, the sum of See Addendum
(E.G. 5TH) (E.G. 10TH) -------------------
( ) dollars per month
- ---------------------------------------------------------------------- -------------------------
During the first ___________ year through the ___________ year of the term of this Lease, the sum of See Addendum
(E.G. 15TH) (E.G. 20TH) -------------------
( ) dollars per month
- ---------------------------------------------------------------------- -------------------------
</TABLE>
Tenant shall pay to Landlord upon the execution of this Lease the sum of _______
______________________________ ($9,575.00) dollars as rent for May rent 1998.
Rent for any period during the term of this Lease which is for less than one (1)
month, shall be a pro rata portion of the monthly installment. Rent shall be
payable without notice or demand and without any deduction, off-set, or
abatement in lawful money of the United States to the Landlord at the address
stated herein for notices or to such other persons or such other places as the
Landlord may designate to Tenant in writing.
5. SECURITY DEPOSIT.
Tenant shall deposit with landlord upon the execution of this Lease the sum
of ($9,575.000 To be annually increased) dollars as a security deposit for the
Tenant's faithful performance of the provisions of this Lease. If Tenant fails
to pay rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this Lease, Landlord may use the security deposit, or any
portion of it, to cure the default or compensate Landlord for all damages
sustained by Landlord resulting from Tenant's default. Tenant shall immediately
on demand pay to landlord the sum equal to that portion of the security deposit
expended or applied by Landlord which was provided for in this paragraph so as
to maintain the security deposit in the sum initially deposited with Landlord.
Landlord shall not be required to keep the security deposit separate from its
general account nor shall Landlord be required to pay Tenant any interest on the
security deposit. If Tenant performs all of Tenant's obligations under this
Lease, the security deposit or that portion thereof which has not previously
been applied by the Landlord, shall be returned to Tenant within fourteen (14)
days after the expiration of the term of this Lease, or after Tenant has vacated
the Premises, whichever is later.
6. USE.
Tenant shall use the Premises only for research and development in
biotechnology, light manufacturing and other related activities and for no other
purpose without the Landlord's prior written consent.
Tenant shall not do, bring or keep anything in or about the Premises that
will cause a cancellation of any insurance covering the Premises or the building
in which the Premises are located. If the rate of any insurance carried by the
Landlord is increased as a result of tenant's use, Tenant shall pay to Landlord
within ten (10) days after written demand from Landlord, the amount of any such
increase. Tenant shall comply with all laws concerning the Premises or Tenant's
use of the Premises, including without limitation, the obligation at Tenant's
cost to alter, maintain, or restore the Premises in compliance and conformity
with all laws relating to the condition, use, or
1.
<PAGE>
occupancy of the Premises by Tenant during the term of this Lease. Tenant shall
not use or permit the use of the Premises in any manner that will tend to create
waste or a nuisance or, if there shall be more than one tenant of the building
containing the Premises, which shall unreasonably disturb any other tenant.
Tenant hereby accepts the Premises in their condition existing as of the
date that Tenant possesses the Premises, subject to all applicable zoning,
municipal, county and state laws, ordinances, regulations governing or
regulating the use of the Premises and accepts this Lease subject thereto and to
all matters disclosed thereby. Tenant hereby acknowledges that neither the
Landlord nor the Landlord's agent has made any representation or warranty to
Tenant as to the suitability of the Premises for the conduct of Tenant's
business.
7. TAXES.
(a) Real Property Taxes.
Tenant shall pay all real property taxes and general assessments levied and
assessed against the Premises during the term of this Lease.
If it shall be Tenant's obligation to pay such real property taxes and
assessments hereunder, Landlord shall use its best efforts to cause the Premises
to be separately assessed from other real property owned by the Landlord. If
Landlord is unable to obtain such a separate assessment, the assessor's
evaluation based on the building and other improvements that are a part of the
Premises shall be used to determine the real property taxes. If this evaluation
is not available, the parties shall equitably allocate the property taxes
between the building and other improvements that are a part of the Premises and
all buildings and other improvements included in the tax bill. In making the
allocation, the parties shall reasonably evaluate the factors to determine the
amount of the real property taxes so that the allocation of the building and
other improvements that are a part of the Premises will not be less than the
ratio of the total number of square feet of the building and other improvements
that are a part of the Premises bears to the total number of square feet in all
buildings and other improvements included in the tax bill.
Real property taxes attributable to land in the Premises shall be
determined by the ratio that the total number of square feet in the Premises
bears to the total number of square feet of land included in the tax bill.
(b) Personal Property Taxes.
Tenant shall pay prior to the delinquency all taxes assessed against and
levied upon the trade fixtures, furnishings, equipment and other personal
property of Tenant contained in the Premises. Tenant shall endeavor to cause
such trade fixtures, furnishings and equipment and all other personal property
to be assessed and billed separately from the property of the Landlord. If any
of Tenant's said personal property shall be assessed with Landlord's property,
Tenant shall pay to Landlord the taxes attributable to Tenant within ten (10)
days after the receipt of a written statement from Landlord setting forth the
taxes applicable to Tenant's property.
8. UTILITIES.
Tenant shall make all arrangements and pay for all water, gas, heat, light,
power, telephone and other utility services supplied to the Premises together
with any taxes thereon and for all connection charges. If any such services are
not separately metered to Tenant, the Tenant shall pay a reasonable proportion,
to be determined by Landlord, of all charges jointly metered with other
premises.
9. MAINTENANCE AND REPAIRS
(a) Tenant's Obligations.
Subject to the provisions of sub-paragraph (a) above and Article 12, Tenant
at Tenant's sole cost and expense shall keep in good order, condition and repair
the premises and every part thereof including, without limitation, all Tenant's
personal property, fixtures, signs, store fronts, plate glass, show windows,
doors, interior walls, interior ceiling, and lighting facilities.
If Tenant fails to perform Tenant's obligation as stated herein, Landlord
may at its option (but shall not be required to), enter the Premises, after ten
(10) days prior written notice to Tenant, put the same in good order, condition
and repair, and the costs thereof together with interest thereon at the rate of
ten percent (10%) per annum shall become due and payable as additional rental to
Landlord together with Tenant's next rental installment.
10. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without the Landlord's prior written consent. make
any alterations, improvements or additions in or about the Premises except for
non-structural work which does not exceed $1,000.00 in cost. As a condition to
giving any such consent, the Landlord may require the Tenant to remove any such
alterations, improvements, or additions at the expiration of the term, and to
restore the Premises to their prior condition by giving Tenant thirty (30) days
written notice prior to the expiration of the term that Landlord requires Tenant
to remove any such alterations, improvements, or additions that Tenant has made
to the Premises. If Landlord so elects, Tenant at its sole cost shall restore
the Premises to the condition designated by Landlord in its election before the
last day of the term of the Lease.
Before commencing any work relating to the alterations, additions, or
improvements affecting the
2.
<PAGE>
Premises, Tenant shall notify Landlord in writing of the expected date of the
commencement of such work so that Landlord can post and record the appropriate
notices of non-responsibility to protect Landlord from any mechanic's liens,
materialmen liens, or any other liens. In any event, Tenant shall pay, when
due, all claims for labor and materials furnished to or for Tenant at or for use
in the Premises. Tenant shall not permit any mechanic's liens or materialmen's
liens to be levied against the Premises for any labor or material furnished to
Tenant or claimed to have been furnished to Tenant or Tenant's agents or
contractors in connection with work of any character performed or claimed to
have been performed on the Premises by or at the direction of Tenant. Tenant
shall have the right to assess the validity of any such lien if, immediately on
demand by Landlord, Tenant procures and records a lien release bond meeting the
requirements of California Civil Code Section 3143 and shall provide for the
payment of any sum that the claimant may recover on the claim (together with the
costs of suit, if it is recovered in the action).
Unless the Landlord requires their removal as set forth above, all
alterations, improvements or additions which are made on the Premises by the
Tenant shall become the property of the Landlord and remain upon and be
surrendered with the Premises at the expiration of the term. Notwithstanding
the provisions of this paragraph, Tenant's trade fixtures, furniture, equipment
and other machinery, other than that which is affixed to the Premises so that it
cannot be removed without material or structural damage to the Premises, shall
remain the property of the Tenant and removed by Tenant at the expiration of the
term of this Lease.
11. INSURANCE; INDEMNITY.
(a) Fire Insurance.
Tenant at its cost shall maintain during the term of this Lease on the
Premises a policy or policies of standard fire and extended coverage insurance
to the extent of at least ninety (90%) percent of full replacement value
thereof. Said insurance policies shall be issued in the names of Landlord and
Tenant, as their interests may appear.
Tenant at its cost shall maintain during the term of this Lease on all
its personal property, Tenant's improvements, and alterations in or about the
Premises, a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of their full
replacement value. The proceeds from any such policy shall be used by Tenant
for the replacement of personal property or the restoration of Tenant's
improvements or alterations.
(b) Liability Insurance.
Tenant at its sole cost and expense shall maintain during the term of
this Lease public liability and property damage insurance with a single combined
liability limit of five hundred thousand ($500,000.00) dollars, and property
damage limits of not less that one hundred thousand ($100,000.00) dollars,
insuring against all liability of Tenant and its authorized representatives
arising out of and in Connection with Tenant's use or occupancy of the Premises,
Both public liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions in Sub-paragraph (d) below,
but the limits of such insurance shall not, however, limit the liability of
Tenant hereunder. Both Landlord and Tenant shall be named as additional
insureds, and the policies shall contain cross-liability endorsements. If
Tenant shall fail to procure and maintain such insurance the Landlord may, but
shall not be required to, procure and maintain same at the expense of Tenant and
the cost thereof, together with interest thereon at the rate of ten (10%)
percent per annum, shall become due and payable as additional rental to Landlord
together with Tenant's next rental installment.
(c) Waiver of Subrogation.
Tenant and Landlord each waives any and all rights of recovery against
the other, or against the officers, employees, agents, and representatives of
the other, for loss of or damage to such waiving party or its property or the
property of others under its control, where such loss or damage is insured
against under any insurance policy in force at the time of such loss or damage.
Each party shall cause each insurance policy obtained by it hereunder to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any such policy.
(d) Hold Harmless.
Tenant shall indemnify and hold Landlord harmless from and against any
and all claims arising from Tenant's use or occupancy of the Premises or from
the conduct of its business or from any activity, work, or things which may be
permitted or suffered by Tenant in or about the Premises including all damage,
costs, attorney's fees, expenses and liabilities incurred in the defense of any
claim or action or proceeding arising therefrom. Except for Landlord's willful
or grossly negligent conduct, Tenant hereby assumes all risk of damage to
property or injury to person in or about the Premises from any cause, and Tenant
hereby waives all claims in respect thereof against Landlord.
(e) Exemption of Landlord from Liability.
Except for Landlord's willful or grossly negligent conduct, Tenant
hereby agrees that Landlord shall not be
3.
<PAGE>
liable for any injury to Tenant's business or loss of income therefrom or for
damage to the goods, wares, merchandise, or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Premises; nor
shall Landlord be liable for injury to the person of Tenant. Tenant's
employees, agents, contractors, or invitees, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning, or lighting fixtures, or from any other
cause, whether such damage results from conditions arising upon the Premises or
upon other portions of the building in which the Premises are a part, or from
any other sources or places. Landlord shall not be liable to Tenant for any
damages arising from any act or neglect of any other tenant, if any, of the
building in which the Premises are located.
12. ASSIGNMENT AND SUBLETTING.
Tenant shall not voluntarily or by operation of law assign, transfer,
sublet, mortgage, or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises without Landlord's prior written
consent which consent shall not be unreasonably withheld. Any attempted
assignment, transfer, mortgage, encumbrance, or subletting without such consent
shall be void and shall constitute a breach of this Lease. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization of
Tenant, or the sale or other transfer of a controlling percentage of tile
capital stock of Tenant, or the sale of at least fifty-one (51%) percent of the
value of the assets of Tenant, shall be deemed a voluntary assignment. The
phrase "controlling percentage" means the ownership of, and the right to vote,
stock possessing at least fifty-one (51%) percent of the total combined voting
power of all classes of Tenant's capital stock issued, outstanding, and entitled
to vote for the election of directors. This paragraph shall not apply to
corporations the stock of which is traded through an exchange or over the
counter.
Regardless of Landlord's consent, no subletting or assignment shall
release Tenant or Tenant's obligation to pay the rent and to perform all other
obligations to be performed by Tenant hereunder for the term of this Lease. The
acceptance of rent by Landlord from any other person shall not be deemed a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting.
13. DEFAULT.
(a) Events of Default.
The occurrence of any one or more of tile following events shall
constitute a default and breach of this Lease by Tenant:
(1) Failure to pay rent when due, if the failure continues for five
(5) days after written notice has been given to Tenant.
(2) Failure to perform any other provision of this Lease if the
failure to perform is not cured within thirty (30) days after written notice
thereof has been given to Tenant by Landlord. If the default cannot reasonably
be cured within said thirty (30) day period, Tenant shall not be in default
under this Lease if Tenant commences to cure the default within the thirty (30)
day period and diligently prosecutes the same to completion.
(3) The making by Tenant of any general assignment. or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless the same is dismissed
within sixty (60) days; 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 the Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in the Lease, where such seizure is not discharged within thirty (30)
days.
Notices given under this paragraph shall specify the alleged default
and the applicable lease provisions, and shall demand that Tenant perform the
provisions of this Lease or pay the rent that is in arrears as the case may be,
within the applicable period of time. No such notice shall be deemed a
forfeiture or a termination of this Lease unless Landlord so elects in the
notice.
(b) Landlord's Remedies.
The Landlord shall have the following remedies if Tenant commits a
default under this Lease. These remedies are not exclusive but are cumulative
and in addition to any remedies now or hereafter allowed by law.
Landlord can continue this Lease in full force and effect, and the
Lease will continue in effect so long as Landlord does not terminate Tenant's
right to possession, and the Landlord shall have the right to collect rent when
due. During the period that Tenant is in default, Landlord can enter the
Premises and relet them, or any part of them, to third parties for Tenant's
account. Tenant shall be liable immediately to the Landlord for all costs the
Landlord incurs in reletting the Premises, including, without limitation,
brokers' commissions, expenses of remodeling the Premises required by the
reletting, and like costs. Reletting can be for a period shorter or longer than
4.
<PAGE>
the remaining term of this Lease. Tenant shall pay to Landlord the rent due
under this Lease on the dates the rent is due, less the rent Landlord receives
from any reletting. No act by Landlord allowed by this paragraph shall
terminate this Lease unless Landlord notifies Tenant that Landlord elects to
terminate this Lease. After Tenant's default and for so long as Landlord has
not terminated Tenant's right to possession of the Premises, if Tenant obtains
Landlord's consent, Tenant shall have the right to assume or sublet its interest
in the Lease, but Tenant shall not be released from liability. Landlord's
consent to the proposed assignment or subletting shall not be unreasonably
withheld.
Landlord elects to relet the Premises as provided in this paragraph,
any rent that Landlord receives from such reletting shall apply from to the
payment of any indebtedness from Tenant to Landlord other than the rent due from
Tenant to Landlord; secondly, to all costs, including maintenance, incurred by
Landlord in such reletting; and third, to any rent due and unpaid under this
Lease. After deducting the payments referred to in this paragraph, any sum
remaining from the rent Landlord receives from such reletting shall be held by
Landlord and applied in payment of future rent as rent becomes due under this
Lease. In no event shall tenant be entitled to any excess rent received by
Landlord. If, on the date rent is due under this Lease, the rent received from
the reletting is less than the rent due on that date. Tenant shall pay to
Landlord, in addition to the remaining rent due, all costs, including
maintenance, that Landlord shall have incurred in reletting that remain after
applying the rent received from reletting as provided in this paragraph.
Landlord can, at its option, terminate Tenant's right to possession of
the Premises at any time. No act by Landlord other than giving written notice
to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the
Premises, or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest in this Lease shall not constitute a termination of Tenant's
right to possession. In the event of such termination. Landlord has the right
to recover from Tenant:
(1) The worth, at the time of the award, of the unpaid rent that had
been earned at the time of the termination of this Lease;
(2) The worth, at the time of the award, of the amount by which the
unpaid rent that would have been earned after the date of the termination of
this Lease until the time of the award exceeds the amount of the loss of rent
that Tenant proves could have been reasonably avoided;
(3) The worth, at the time of the award, of the amount by which the
unpaid rent for the balance of the term after the time of the award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided; and
(4) Any other amount, including court costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default.
"The worth at the time of the award," as used in (1) and (2) of this
paragraph is to be computed by allowing interest at the maximum rate an
individual is permitted by law to charge. "The worth at the time of the award,"
as referred to in (3) of this paragraph is to be computed by discounting the
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award, plus one (1%) percent.
If Tenant is in default under the terms of this Lease, Landlord shall
have the additional right to have a receiver appointed to collect rent and
conduct Tenant's business. Neither the filing of a petition for the appointment
of a receiver nor the appointment itself shall constitute an election by
Landlord to terminate this Lease.
Landlord at any time after Tenant commits a default, can cure the
default at Tenant's cost and expense. If Landlord at any time, by reason of
Tenant's default, pays any sum or does any act that requires the payment of any
sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord
at the time the sum is paid, and if paid at a later date shall bear interest at
the maximum rate an individual is permitted by law to charge from the date the
sum is paid by Landlord until Landlord is reimbursed by Tenant. The sum,
together with interest thereon, shall be considered additional rent.
14. SIGNS.
Tenant shall not have the right to place, construct or maintain any
sign, advertisement, awning, banner, or other exterior decorations on the
building or other improvements that are a part of the Premises without
Landlord's prior, written consent, which consent shall not be unreasonably
withheld.
15. EARLY POSSESSION.
In the event that the Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term at this Lease, such
occupancy shall be subject to all the provisions of this Lease. Said early
possession shall not advance the termination date of this Lease.
16. SUBORDINATION.
This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and
5.
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to any and all advances made on the security thereof and to all renewal,
modifications, and extensions thereof. Notwithstanding any such subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all the other provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its terms. If any mortgagee, trustee, or
ground lessor shall elect to have this Lease prior to the lien of its mortgage
or deed of trust or ground lease, and shall give written notice thereof to
Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease is dated prior to or subsequent to the date of
such mortgage, deed of trust or ground lease, or the date of recording thereof.
Tenant agrees to execute any documents requiring to effect such subordination or
to make this Lease prior to the lien of any mortgage, deed of trust, or ground
lease, as the case may be, and failing to do so within ten (10) days after
written demand from Landlord does hereby make, constitute and irrevocably
appoint Landlord as Tenant's attorney in fact and its Tenant's name, place and
stead to do so.
17. SURRENDER.
On the last day of the term hereof, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in good condition, broom clean,
ordinary wear and tear accepted. Tenant shall repair any damage to the Premises
occasioned by its use thereof, or by the removal of Tenant's trade fixtures.
furnishings and equipment which repair shall include the patching and filling of
holes and repair of structural damage. Tenant shall remove all of its personal
property and fixtures on the Premises prior to the expiration of the term of
this Lease and if required by Landlord pursuant to Article 10(a) above, any
alterations, improvements or additions made by Tenant to the Premises. If
Tenant fails to surrender the Premises to Landlord on the expiration of the
Lease as required by this paragraph, Tenant shall hold Landlord harmless from
all damages resulting from Tenant's failure to vacate the Premises, including,
without limitation, claims made by any succeeding tenant resulting from Tenant's
failure to surrender the Premises.
18. HOLDING OVER.
If the Tenant, with the Landlord's consent, remains in possession of
the Premises alter the expiration or termination of the term of this Lease, such
possession by Tenant shall be deemed to be a tenancy from month to-month at a
rental in the amount of the last monthly rental plus all other charges payable
hereunder, upon all the provisions of this Lease applicable to month-to-month
tenancy.
19. BINDING ON SUCCESSORS AND ASSIGNS.
The terms, conditions and covenants of this Lease shall be binding
upon and shall inure to the benefit of each of the parties hereto, their heirs,
personal representatives, successors and assigns.
20. NOTICES.
Whenever under this Lease a provision is made for any demand, notice
or declaration of any kind, it shall be in writing and served either personally
or sent by registered or certified United States mail, postage prepaid,
addressed at the addresses set forth below:
TO LANDLORD AT: L.J. Valente TENANT AT: Clontech Labs, Inc.
--------------------- ------------------------------
25354 La Rena Ln. 1020 E. Meadow Circle
- ------------------------------------- ------------------------------
Los Altos Hills, CA 94022 Palo Alto, CA 94303
- ------------------------------------- ------------------------------
Such notices shall be deemed to be received within forty-eight {48) hours from
the time of mailing, if mailed as provided for in this paragraph.
21. LANDLORD'S RIGHT TO INSPECTION.
Landlord and Landlord's agent shall have the right to enter the
Premises at reasonable times for the purpose of inspecting same, showing the
same to prospective purchasers or lenders, and making such alterations, repairs,
improvements or additions to the Premises or to the building of which the
Premises are a part as Landlord may deem necessary or desirable. Landlord may
at any time place on or about the Premises any ordinary "For Sale" signs and
Landlord may at any time during the last one hundred twenty (120) days of the
term of this Lease place on or about the Premises any ordinary "For Sale or
Lease" signs, all without rebate of rent or liability to Tenant.
22. CHOICE OF LAW.
This Lease shall be governed by the laws of the state where the
Premises are located.
23. ATTORNEY'S FEES.
If either Landlord or Tenant becomes a party to any litigation or
arbitration concerning this Lease, the Premises, or the building or other
improvements in which the Premises are located, by reason of any act or omission
of the other party or its authorized representatives, and not by reason of any
act or omission of the party that becomes a party to that litigation or any act
or omission of its authorized representatives, the party that causes the other
party to become involved in the litigation shall be liable to that party for
reasonable attorney's fees and court costs incurred by it in the litigation.
If either party commences an action against the other party arising
out of or in connection with this Lease,
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the prevailing party shall be entitled to have and recover from the losing party
reasonable attorney's fees and costs of suit.
24. LANDLORD'S LIABILITY.
The term 'Landlord" as used in this Lease shall mean only the owner or
owners at the time in question of the fee title or a Lessee's interest in a
ground lease of the Premises, and in the event of any transfer of such title or
interest, Landlord herein named (and in case of any subsequent transfers to the
then successor) shall be relieved from and after the date of such transfer of
all liability in respect to Landlord's obligations thereafter to be performed.
The obligations contained in this Lease to be performed by Landlord shall be
binding upon the Landlord's successors and assigns, only during their respective
periods of ownership.
25. WAIVERS.
No waiver by Landlord of any provision hereof shall be deemed a waiver
of any other provision hereof or of any subsequent breach by Tenant of the same
or any other provision. Landlord's consent to or approval of any act shall not
be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of its acceptance of such rent.
26. INCORPORATION OF PRIOR AGREEMENTS.
This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. This Lease may be modified only in writing, and
signed by the parties in interest at the time of such modification
27. TIME.
Time is of the essence of this Lease.
28. SEVERABILITY.
The unenforceability, invalidity, or illegality of any provision of
this Lease shall not render the other provisions hereof unenforceable, invalid
or illegal.
29. ESTOPPEL CERTIFICATES.
Each party, within ten (10) days after notice from the other party,
shall execute and deliver to the other party a certificate stating that this
Lease is unmodified and in full force and effect, or in full force and effect as
modified, and stating the modification. The certificate shall also state the
amount of minimum monthly rent, the dates to which rent has been paid in
advance, and the amount of any security deposit or prepaid rent, if any, as well
as acknowledging that there are not, to that party's knowledge, any uncured
defaults on the part of the other party, or specifying such defaults, if any,
which are claimed. Failure to deliver such a certificate within the ten (10)
day period shall be conclusive upon the party failing to deliver the certificate
to the benefit of the party requesting the certificate that this Lease is in
full effect, that there are no uncured defaults hereunder, and has not been
modified except as may be represented by the party requesting the certificate.
30. COVENANTS AND CONDITIONS.
Each provision of this Lease performable by Tenant shall be deemed both a
covenant and a condition.
31. SINGULAR AND PLURAL.
When required by the context of this Lease, the singular shall indicate the
plural.
32. JOINT AND SEVERAL OBLIGATIONS.
"Party" shall mean Landlord and Tenant; and if more than one person or
entity is the Landlord or Tenant, the obligations imposed on that party shall be
joint and several.
33. OPTION TO EXTEND
Provided that Tenant shall not then be in default hereunder, Tenant shall
have the option to extend the term of this Lease for ______N/A_______ additional
_____N/A_______ year periods upon the same terms and conditions herein
contained, except for fixed minimum monthly rentals, upon delivery by Tenant to
Landlord of written notice of its election to exercise such option(s) at lease
ninety (90) days prior to the expiration of the original (or extended) term
hereof. The parties hereto shall have thirty (30) days after the Landlord
receives the option notice in which to agree on the minimum monthly rental
during the extended term(s). If the parties agree on the minimum monthly rent
for the extended term(s) during the period, they shall immediately execute an
amendment to this Lease stating the minimum monthly rent as set forth herein for
each extended term of this Lease. If the parties hereto are unable to agree on
the minimum monthly rent for the extended term(s) within said thirty (30) day
period, the option notice shall be of no effect and this Lease shall expire at
the end of the term. Neither party to this Lease shall have the right to have a
court or other third party set the minimum monthly rent.
7.
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34. ADDENDUM.
Any addendum attached hereto and either signed or initialed by the parties
shall be deemed a part hereof and shall supersede any conflicting terms or
provisions contained in this Lease.
(1) Rent Increase: the Bay Area Consumer Price Index application to
the lease rate shall be one hundred percent (100%) and shall begin on the first
anniversary date, May 1, 1999 and every anniversary date thereafter.
(2) The Tenant at their expense will repave the parking lot behind
the buildings at 4074 and 4062 and the parking adjacent to 4062 Fabian Way no
later than April 1, 1999.
(3) The Tenant is responsible, at their expense, for all roof repairs
and will maintain roof in good condition at all times.
(4) Tenant is responsible for all maintenance, repairs and
replacement of all units for the HAVC/AC systems at their expense.
(5) The Tenant shall provide, at all times, truck access for loading
and unloading at 809 San Antonio Rd., via 4062 and 4074 Fabian Way.
(6) First Option to renew for five (5) years at the end of the Lease,
with a six (6) month notice to review.
(7) The Lessor will allow the Lessee sub-letting privilege by waiving
the sub-let provision on the standard leasing form.
The parties hereto have executed this Lease on the date first above written.
LANDLORD: TENANT:
By: /s/ L. J. Valente By: /s/ Joe Grippo
------------------------------- ------------------------------------
By: By:
------------------------------- ------------------------------------
8.
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AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE (this "Lease"), made this 28th day of April,
1997, by and between TELEDYNE INDUSTRIES, INC., a California corporation
("Landlord"), and CLONTECH LABORATORIES, INC., a California corporation
("Tenant").
WITNESSETH
WHEREAS, Landlord desires to lease to Tenant and Tenant desires to lease
from Landlord the Premises (as defined below), under the terms and conditions
hereof; and
NOW THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. PREMISES; POSSESSION; TERM.
(a) Landlord does hereby demise and lease to Tenant, and Tenant
does hereby hire and lease from Landlord, approximately 42,565 square feet of
the building consisting of approximately 113,000 square feet (the "Building"),
located at 1290 and 1300 Terra Bella Avenue, Mountain View, California, more
fully described in Exhibit A attached hereto and made a part hereof, together
with a non-exclusive right to the land underlying the Building as shown in
Exhibit A (the "Land"), drives and sidewalks, and access to and egress from the
Premises, all in their present, "as is" condition (collectively, the
"Premises"), subject, however, to the rights of Landlord and other tenants of
the Building. A plot plan indicating available Tenant parking is set forth in
Exhibit A-1.
(b) The term of this Lease (the "Term" or "Lease Term") shall
commence on May 1, 1997 (the "Commencement Date") and shall expire on September
30, 2007, subject to the provisions of Paragraph 35 hereof.
(c) Notwithstanding anything to the contrary contained in this
Lease or the foregoing, if Tenant has, despite its diligent efforts, not been
able to secure all permits, approvals, licenses and authorizations necessary for
the operation by Tenant of its business at the Premises (collectively,
"Permits"), including, without limitation, any approvals relating to alterations
or improvements Tenant intends to make to the Premises and any building and
demolition permits necessary for the construction of the Tenant Improvements, or
if any of the foregoing are subject to unreasonably burdensome conditions, on or
prior to June 1, 1997 (the "Termination Cutoff Date"), Tenant shall have the
right to terminate this Lease by providing written notice to Landlord of its
intention to terminate. Such termination notice shall be effective upon
delivery thereof to Landlord. Upon such termination, (i) Landlord shall be
entitled to retain from the security deposit provided by Tenant hereunder the
sum of $27,667 ("Termination Fee"), and (ii) Tenant shall restore the Premises
to its original condition as of the Commencement Date and Tenant shall otherwise
be responsible under this Lease for the acts and omissions of Tenant and its
agents and contractors while Tenant was in possession of the Premises. However,
except for the Termination Fee, Tenant shall not be liable to Landlord for
damages arising solely on account of the termination of this Lease under this
Paragraph 1(c). From the Commencement Date through the Termination Cutoff Date,
Landlord shall have the right to solicit back-up third party offers from
prospective tenants to lease the Premises. If Landlord wishes to accept such an
1.
<PAGE>
offer, it shall provide Tenant with ten days notice within which to accept or
reject the lease of the Premises on substantially the same terms as set forth in
such third party offer. If Tenant does not agree in writing to lease the
Premises on such terms within such ten day period, then Landlord shall have the
right (x) to enter into a lease with such third party on substantially such
terms, and (y) to terminate this Lease, whereupon Landlord shall promptly return
to Tenant's security deposit paid hereunder. With respect to any such
termination by Landlord, clause (ii) of this paragraph shall apply.
2. NET LEASE; RENT ABSOLUTE.
(a) This Lease shall be deemed and construed to be a "net
Lease" and it is intended that the rent provided for in Paragraph 3 shall be an
absolutely net return to the Landlord throughout the Term of this Lease, free of
any expense, charge or other deduction whatsoever, with respect to the Premises
and/or the ownership, leasing, operation, management, maintenance, repair,
rebuilding, use or occupation thereof, or of any portion thereof, or with
respect to any interest of the Landlord therein, except only as otherwise
expressly provided herein.
(b) The obligations of Tenant to pay Basic Rent and Additional
Rent (each hereinafter defined) and to perform and observe Tenant's other
covenants contained herein shall be absolute and unconditional, and without
deduction or right of offset by Tenant.
3. BASIC RENT. Upon execution of this Lease, Tenant shall pay to
Landlord, as basic rent for the Premises for the Term of this Lease, the
following ("Basic Rent"):
(a) From November 1, 1997 through the twelfth month thereafter
("Year 1"), the Basic Rent shall be $27,667.25 per month, based on a rental rate
of $.65 per square foot. The first month's (November, 1997) Basic Rent shall be
payable in advance upon execution and delivery of this Lease.
(b) For each year following Year 1, the Basic Rent, payable
monthly, shall be equal to the greater of (i) the Basic Rent payable for the
previous year, or (ii) the Basic Rent payable in the previous year plus the CPI
Adjustment.
(c) The CPI Adjustment shall be determined as follows:
Using the Consumer Price Index for all Urban Consumers
(1982 - 84 = 100), City Average, for the San Francisco-Bay
Area Region, All Items, published by the Bureau of Labor
Statistics of the United States Department of labor (the
"Index"):
(x) for the first month of the previous year, with
respect to the rental calculation for the current
year, as the denominator, and the Index for
(y) the last month of the previous year, with respect to
the rental calculation for the current year, as the
numerator
2.
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(or, if the Index is not published for such respective month, then the Index
published for the month closest, but prior to, the respective month called for
in the above formula), multiply the resulting fraction times the monthly rent
for the last month of the lease year immediately preceding the year for which
the rental calculation is to be made. The resulting number minus the monthly
rent for the last month of the lease year immediately preceding the year for
which the rental calculation is to be made times 12 shall be the annual increase
that would result from the increase in the Index (the "CPI Adjustment"). For
example, if the index for the first month of Year 1 is 40 and for the last month
of Year 1 is 43, the resulting fraction, 43/40 = 1.075, times the monthly rent
for the last month of Year 1 ($27,667.25), less the monthly rent for the last
month of the lease year immediately preceding the year for which the rental
calculation is to be made, namely $27,667.25, equals $2,075.04, the CPI
Adjustment to monthly Basic Rent. The monthly Basic Rent for the second year,
therefore, would be the Basic Rent for Year 1 ($27,667.25) plus the CPI
Adjustment ($2,075.04) or $29,742.29. The parties agree that in the event that
the Index is no longer in effect at the time of a year, the parties shall, in
good faith, determine the rental for the next successive year based upon a
comparable index.
The Basic Rent shall be payable monthly, commencing on November 1,
1997("Rent Commencement Date") (with the Basic Rent for the first month
following the Rent Commencement Date being payable upon execution of this
Lease), and thereafter on the first day of each subsequent month during the Term
thereafter (with any Basic Rent for the partial calendar month, if any, existing
at the expiration of thirty days following the Rent Commencement Date, payable
on or before such thirtieth day). The Rent Commencement Date shall be extended
up to thirty days if Tenant's conditional certificate of occupancy is not
obtained by November 1, 1997, not due to delays caused by Tenant. Rental
payments hereunder shall be made by Tenant to Landlord each by a single check or
draft payable to the order of Landlord and delivered to Landlord either
personally or by mail c/o Landlord's address set forth in Paragraph 23, or such
other address as Landlord may provide to Tenant. Unless otherwise provided
herein, any statement of square footage of the Building set forth in this Lease,
or that may have been used in calculating rental, is an approximation which
Landlord and Tenant agree is reasonable and the rental based thereon is not
subject to revision whether or not the actual square footage is more or less.
4. ADDITIONAL RENT.
(a) Tenant shall make additional payments to Landlord
("Additional Rent", and together with Basic Rent, "Rent") as payment for or
reimbursement or prepayment of any and all costs, expenses and liabilities (i)
incurred or paid by Landlord in satisfaction of any obligations of Tenant
hereunder not performed by Tenant in accordance with the provisions hereof, (ii)
incurred in the defense of any action or proceeding with respect to the Premises
or this Lease with respect to which Tenant is liable to Landlord under this
Lease, or in enforcing this Lease, including without limitation those
liabilities described in Paragraph 19 hereof, and (iii) all other charges
required to be paid by Tenant pursuant to the terms of this Lease, including,
without limitation, the charges set forth in Paragraphs 5, 8, 10 and 11. Upon
the payment, prepayment, or incurrence of any such cost, expense, or liability
described in this Paragraph by Landlord, Landlord's notice of Additional Rent in
respect thereof shall be accompanied by invoices or other appropriate
documentation concerning the nature, amount and incurrence of such cost, expense
or liability. Subject to Subparagraph 4(b) if the Additional Rent payable
3.
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under this Paragraph is not paid within ten (10) days of such demand, such
Additional Rent shall bear interest from the date such payment was due at the
Default Interest Rate (hereinafter defined) until the amount due shall have been
fully paid.
(b) Notwithstanding anything to the contrary herein contained,
the Landlord may estimate the Additional Rent or any category of Additional Rent
annually in advance by giving written notice thereof to Tenant at least thirty
(30) days prior to the beginning of each calendar year. Tenant shall pay to
Landlord each month, at the same time the Basic Rent is due, an amount equal to
1/12 of the estimated Additional Rent. If any item comprising Additional Rent
for which Tenant is paying monthly estimates in advance as herein provided,
increases during a calendar year, Landlord may increase the estimated Additional
Rent during such year by giving Tenant written notice to that effect, and
thereafter Tenant shall pay to Landlord in each of the remaining months of such
year an amount equal to the amount of such increase in the estimated Additional
Rent divided by the number of months remaining in such year.
(c) If Landlord requires the payment of estimated Additional
Rent hereunder, within ninety (90) days after each calendar year, Landlord shall
prepare and deliver to Tenant a statement showing the actual Additional Rent.
Within thirty (30) days after receipt of the aforementioned statement, Tenant
shall pay to Landlord, or Landlord shall credit against the next Basic Rent
payment or payments due from Tenant the difference between the actual Additional
Rent for the preceding calendar year and the estimated amount paid by Tenant
during such year. If this Lease shall expire or be terminated on any date other
than the last day of a calendar year, then the Additional Rent for such partial
calendar year shall be prorated on the basis of the number of days during the
year this Lease was in effect in relation to the total number of days in such
year.
(d) Tenant shall have the right to inspect, at reasonable times
and in a reasonable manner during the ninety (90) day period following the
delivery of Landlord's statement of the actual amount of the Additional Rent
such of Landlord's books of account and records as pertain to and contain
information concerning such Additional Rent in order to verify the amounts
thereof. Tenant's failure to exercise its rights hereunder within said ninety
(90) day period shall be deemed a waiver of its right to inspect or contest the
method, accuracy or amount of the Additional Rent. If as a result of such
inspection, Landlord and Tenant agree that Landlord has overcharged Tenant, the
amount overcharged shall be paid to Tenant within 30 days after such agreement
is reached.
5. TAXES, ASSESSMENTS AND OTHER CHARGES.
(a) Commencing on the earlier of (i) Tenant's substantial
completion of pre-occupancy tenant improvements or (ii) Rent Commencement Date
(such earlier date being the "Expense Commencement Date"), Tenant shall pay and
discharge promptly when due and payable all taxes, sewer rents, water charges,
assessments and other charges, imposts and levies of every kind and nature
whatsoever, whether general or special, ordinary or extraordinary, arising or
accruing during the Term of this Lease, which have been or may hereafter be
imposed, charged, assessed or levied upon or against, or which have or may
become due and payable with respect to the Premises (and Tenant's Proportionate
Share (as defined in Paragraph 24) for any of the foregoing that are not
separately identifiable to the Premises) or any part thereof or which
4.
<PAGE>
may be imposed, assessed, charged, or levied upon the leasehold estate hereby
created or upon the reversionary estate in the Premises, under or by virtue of
any present or future law, rule, requirement, order, direction, ordinance or
regulation of any governmental or other lawful authority whatsoever, and for any
reason whatsoever, and which shall become due and payable during the Term of
this Lease (collectively, all of the foregoing, "Taxes"); provided that said
taxes, sewer rents, water charges, assessments and other charges shall, as to
the tax year or years in which this Lease shall commence and the tax year or
years in which this Lease shall be terminated, be apportioned according to the
part of such tax year within the Term, and if the tax rate for such tax year has
not been determined, it shall be presumed that the tax rate for such tax year
will be the same as for the previous tax year, subject to adjustment when actual
tax bills are available. Tenant shall have no obligation with respect to any
taxes, sewer rents, water charges or assessments which accrued for periods prior
to the Expense Commencement Date.
(b) Tenant shall promptly pay the amounts set forth in
Paragraph 5(a) as Additional Rent under Paragraph 4.
(c) If Tenant shall default in the payment of any taxes,
assessments or public charges required to be paid by Tenant, Landlord shall have
the right to pay the same together with any penalties and/or interest, in which
event the amount so paid by Landlord shall be deemed Additional Rent.
6. TENANT'S WORK. Prior to the Expense Commencement Date, Tenant
shall, at its sole cost and expense, perform pro-occupancy improvements in
accordance with Paragraph 7.3.
As soon as reasonably practicable after the execution of this
Lease, Tenant shall perform the asbestos abatement tasks identified in Exhibit
B, attached hereto, for which Landlord will credit Tenant with Tenant's actual
out-of-pocket expenses (whether such expenses are incurred directly or as a part
of improvements made to the Premises by Tenant, including, without limitation,
improvements of Tenant in upgrading or replacing HVAC systems that may require
removal of asbestos for installation (and in the case of the latter, the costs
attributed to such tasks shall be reasonably estimated by agreement of the
parties if not separately itemized)) up to a maximum of $20,000 towards the Base
Rent due for the thirteenth month of the Lease. Landlord shall not be
responsible for the condition or remediation of any other asbestos containing
materials at or on the Premises, all of which shall be Tenant's responsibility.
Tenant acknowledges receipt of a copy of the summary of asbestos containing
materials attached hereto in Exhibit C prepared by a consultant to Landlord,
which Landlord is providing to Tenant without representation or warranty.
Landlord hereby agrees that Landlord shall deliver the heating,
ventilating and air-conditioning ("HVAC"), electrical and plumbing systems,
electrical and plumbing fixtures and the roof in good working order, it being
acknowledged and agreed by Tenant that Landlord shall have no ongoing obligation
with respect to the maintenance, replacement or repair of said items from or
after the Commencement Date. By taking possession of the Premises, Tenant shall
be deemed to have accepted the condition of the HVAC, electrical and plumbing
systems, electrical and plumbing fixtures and the roof.
5.
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7. ACCEPTANCE OF PREMISES; MAINTENANCE AND ALTERATION OF PREMISES; NO
MECHANIC'S LIENS.
7.1 ACCEPTANCE OF PREMISES.
(a) Tenant accepts the Premises, including the
improvements thereon, in the condition they are in as of the Commencement Date
of this Lease. Tenant hereby acknowledges: (a) that it has satisfied itself
with respect to the condition of the Premises (including, but not limited to the
electrical and fire sprinkler systems, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 34) and the present and future
suitability of the Premises for Tenant's intended use, (b) that Tenant has made
such investigation as Tenant deems necessary with respect to such matters and
assumes all responsibility for such investigations as the same relate to
Tenant's occupancy of the Premises, and (c) that neither Tenant nor any of
Tenant's agents, has made any oral or written representations or warranties with
respect to such matters other than as set forth in this Lease.
(b) Tenant shall, at Tenant's sole cost and expense and
at all times, keep the Premises and every part thereof in as good operating
order, condition and state of repair, structural and non-structural (whether or
not such portion of the Premises requiring repair, or the means of repairing the
same, are reasonably or readily accessible to Tenant, and whether or not the
need for such repairs occurs as a result of Tenant's use, any prior use, the
elements or the age of such portion of the Premises) as when received,
including, without limiting the generality of the foregoing, all equipment or
facilities serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired pressure
vessels, fire sprinkler and/or standpipe and hose or other automatic fire
extinguishing system, including fire alarm and/or smoke detection systems and
equipment, fire hydrants, fixtures, walls (interior and exterior), foundations,
ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, about, or adjacent to the Premises. Tenant, in keeping the
Premises in such good operating order, condition and state of repair, shall
exercise and perform good maintenance practices. Tenant's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in such good operating
order, condition and state of repair. During the Term, Tenant shall keep the
Premises in a clean, safe and healthy condition so as to conform to all lawful
requirements, laws and ordinances and directions of the proper public
authorities (including, without limitation, compliance under the Americans with
Disabilities Act, with respect to which Landlord shall have no responsibility
hereunder, whether such compliance relates to conditions existing prior to or
following the Commencement Date) and the requirements of all policies of
insurance from time to time in force during the term of this Lease, all at
Tenant's own sole cost and expense, except for any Hazardous Substance to the
extent Tenant is not responsible therefor under Paragraph 34. Landlord shall be
under no obligation to make any repairs or replacements to the Premises or any
portion thereof.
(b) (i) Notwithstanding the foregoing or anything
contained in Paragraph 9, with respect to the Building and Land constituting the
Premises that are delivered to Tenant under this Lease, Landlord shall
effectuate seismic and structural alterations necessary to comply with
applicable laws, and the Americans With Disabilities Act and code compliance, in
6.
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each case to the extent not arising from the use and occupancy of the Premises
by Tenant or Tenant's construction of improvements or alterations (and those so
arising shall be Tenant's responsibility). With respect to compliance resulting
from the actions of third parties, Landlord's responsibility shall only arise in
the event of unsolicited or unilateral action by such third parties, uninitiated
by Tenant. Landlord shall be entitled to charge and collect from Tenant
Tenant's Proportionate Share all expenses pertaining to Landlord's obligations
under this Paragraph, such expenses being payable 30 days following Landlord's
invoice; provided however, that if Tenant's Proportionate Share of such expenses
shall exceed $29,000 (on a project by project basis), Landlord shall amortize
such expenses over the useful life thereof (in accordance with generally
accepted accounting principles) and Tenant shall pay such amortized amount
monthly through the earlier of (x) the expiration or termination of this Lease
or (y) the expiration of such useful life. All amounts payable under this
Paragraph by Tenant shall be deemed Additional Rent under this Lease. Tenant
shall allow Landlord and its agents and contractors access to the Premises for
the purpose of Landlord satisfying its obligations under this Paragraph.
(c) Tenant shall, at Tenant's sole cost and expense,
procure and maintain contracts, with copies to Landlord, in customary form and
substance for, and with contractors specializing and experienced in, the
inspection, maintenance and service of the following equipment and improvements,
if any, located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, and (v) roof covering and drain maintenance. If Tenant fails to
procure and maintain such foregoing contracts, Landlord shall have the right to
procure and maintain such contracts at Tenant's expense.
7.2 LANDLORD'S OBLIGATIONS. It is intended by the Parties
hereto that Landlord have no obligation, in any manner whatsoever, to repair and
maintain the Premises, the improvements located thereon, or the equipment
therein, whether structural or non-structural, all of which obligations are
intended to be that of the Tenant. It is the intention of the Parties that the
terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Notwithstanding the foregoing, nothing
contained in this Paragraph shall supersede the obligations of Landlord under
Paragraph 7.1(b)(i). Tenant and Landlord expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms with respect to, or which affords Tenant the right to make repairs at the
expense of Landlord or to terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) The term "UTILITY INSTALLATIONS" is used in this
Lease to refer to all carpeting, window coverings, air lines, power panels,
electrical distribution, security, fire protection systems, communication
systems, lighting fixtures, heating, ventilating, and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term
"Trade Fixtures" shall mean Tenant's machinery and equipment. The term
"Alterations" shall mean any modification of the improvements on the Premises
from that which are provided by Landlord under the terms of this Lease, other
than Utility Installations or Trade Fixtures, whether by addition or
deletion. "Tenant Owned Alterations and/or Utility Installations" are
defined as
7.
<PAGE>
Alterations and/or Utility Installations made by Tenant during the Term that are
not yet owned by Landlord. Tenant shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Landlord's prior
written consent which consent shall not be unreasonably withheld or delayed.
Tenant may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof), as long as they are not visible from the
outside, do not involve puncturing, relocating or removing the roof or any
existing walls, the cost thereof for any single Utility Installation during the
Term does not exceed Twenty-Five Thousand Dollars ($25,000) and any such Utility
Installation does not adversely affect any existing Utility Installation (each a
"Permitted Utility Installation").
(b) Any Alterations or Utility Installations that Tenant
shall desire to make and which require the consent of the Landlord shall be
presented to Landlord in written form with proposed detailed plans. All
consents given by Landlord under this Paragraph 7 shall be deemed conditioned
upon: (i) Tenant's acquiring applicable permits required by governmental
authorities, (ii) the furnishing of copies of such permits together with a copy
of the plans and specifications for the Alteration or Utility Installation to
Landlord prior to commencement of the work thereon, and (iii) the compliance by
Tenant with all conditions of said permits in a prompt and expeditious manner.
Any Alterations or Utility Installations by Tenant during the Term shall be done
in a good and workmanlike manner, with good and sufficient materials, and in
compliance with all Applicable Law. Tenant shall promptly upon completion
thereof furnish Landlord with as-built plans and specifications therefor.
Landlord may (but without obligation to do so) condition its consent to any
requested Alteration or Utility Installation that costs Twenty-Five Thousand
Dollars ($25,000) or more upon Tenant's providing Landlord with a lien and
completion bond in any amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Tenant's posting an
additional Security Deposit with Landlord under Paragraph 38 hereof; PROVIDED,
HOWEVER, that Tenant shall have no obligation to provide such bond or Security
Deposit to Landlord with respect to Permitted Utility Installations.
(c) Tenant shall pay, when due, all claims for labor or
material furnished or alleged to have been furnished to or for Tenant at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Tenant shall
give Landlord not less than ten (10) days' notice prior to the commencement of
any work in, on or about the Premises, and Landlord shall have the right to post
notices of non-responsibility in or on the Premises as provided by law;
PROVIDED, HOWEVER, that Tenant shall have no obligation to provide such notice
to Landlord with respect to Permitted Utility Installations. Tenant shall not
permit mechanic's, laborer's, materialmen's or other liens to stand against the
Premises for any labor or material furnished to Tenant or claimed to have been
furnished to Tenant in connection with work of any character performed or
claimed to have been performed on the Premises by or at the direction or
sufferance of Tenant. If Tenant shall, in good faith, contest the validity of
any such lien, claim or demand, then Tenant shall, at its sole expense defend
and protect itself, Landlord and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Landlord or the Premises. If Landlord shall
require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord
in an amount equal to one and one-half times the amount of such contested lien,
claim or demand, indemnifying Landlord against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim: On
8.
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final determination of the lien or claim for lien, Tenant shall immediately pay
any judgment rendered with all proper costs and charges and shall have the lien
released or judgment satisfied at Tenant's own expense, and Landlord will
promptly return any security which Tenant may have furnished to Landlord.
Tenant's obligations hereunder shall survive any termination or expiration of
the Lease.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION
(a) Subject to Landlord's right to require their removal
or become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Installations made to the Premises by Tenant shall be
the property of and owned by Tenant, but considered a part of the Premises.
Landlord may, at any time and at its option, elect in writing to Tenant to be
the owner of all or any specified part of the Tenant Owned Alterations and
Utility Installations. Unless otherwise instructed per subparagraph 7.4(b)
hereof, all Tenant Owned Alterations and Utility Installations shall, at the
expiration or earlier termination of this Lease, become the property of Landlord
and remain upon and be surrendered by Tenant with the Premises.
(b) At the time of Tenant's request for approval to make
Tenant Owned Alterations or Utility Installations, Tenant shall request and
Landlord shall advise Tenant in writing of Landlord's requirement as to whether
or which portion of such Owned Alterations or Utility Installations are to be
removed by Tenant upon termination of the Lease. Unless express written
approval to leave such Tenant Owned Alterations or Utility Installations is
provided by Landlord, the same shall be removed by Tenant upon termination of
the Lease. Landlord may require the removal at any time of all or any part of
any Tenant Owned Alterations or Utility Installations made without the written
consent of Landlord.
(c) Tenant shall surrender the Premises by the end of
the last day of the Term or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris and in
as good operating order, condition and state of repair as when received and
otherwise in conformity with Tenant's obligations under this Paragraphs 7 and 34
and Applicable Law, excepting ordinary wear and tear and damage caused by fire
or other casualty loss which Tenant is not obligated to repair, replace or
otherwise remedy (or bear the cost thereof) under any provision of this Lease.
"Ordinary wear and tear" shall not include any damage or deterioration that
would have been prevented by good maintenance practice or by Tenant performing
all of its obligations under this Lease. Except as otherwise agreed, designated
pursuant to the approval procedure set forth in Paragraph 7.3 or specified in
writing by Landlord, the Premises, as surrendered, shall include the Utility
Installations. The obligation of Tenant shall include without limitation the
repair of any damage occasioned by the installation, maintenance or removal of
Tenant's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Tenant, and the removal, replacement, or remediation of any soil, material or
ground water to the extent contaminated by Tenant, all as may then be required
by Applicable Law and/or good practice. Tenant's Trade Fixtures shall remain
the property of Tenant and shall be removed by Tenant subject to its obligation
to repair and restore the Premises per this Lease. Notwithstanding the
foregoing, Landlord and Tenant agree that immediately prior to the surrender of
the Premises by
9.
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Tenant, the obligations of Tenant to prepare for such surrender shall
specifically include, but shall not be limited to, the following:
(1) VAULTS, SUMPS, PITS AND CONTAINMENT
CHANNELS. Tenant represents to Landlord that Tenant shall not use any existing
vault(s), sump(s), pit(s) or containment channel(s) on the Premises. If (i) any
vault(s), sump(s), pit(s) or containment channel(s) are used or installed by
Tenant on the Premises, and (ii) after removal of any equipment, if one or more
vault(s), sump(s), pit(s) or containment channel(s) is exposed, Tenant shall:
A. Clear all debris and any free
standing liquids from such vault(s), sump(s), pit(s) or containment channel(s);
B. Clean interior walls and floors
of the vault(s), sump(s), pit(s) or containment channel(s) to the extent
necessary to permit a visual inspection by representatives of Landlord in order
that such representatives may determine the overall condition of the vault(s),
sump(s), pit(s) or containment channel(s);
C. Notify Landlord that such
vault(s), sump(s), pit(s) or containment channel(s) are available for inspection
and provide Landlord's representatives reasonable access to the Premises in
order to accomplish such inspection.
(2) UTILITIES. Upon removal of equipment
that requires the disconnection of utilities, Tenant shall:
A. With regard to electrical
overhead drops:
1. Remove electrical feeds
to ceiling height or
above; and
2. Terminate wiring in
junction boxes according
to local codes;
B. With regard to electrical wall
feeds:
1. Terminate wiring at
junction box or panel
according to local
codes;
C. With regard to electrical floor
feeds:
1. Terminate electrical
floor feeds at floor
level or below; and
2. Terminate wiring in
junction box according
to local codes;
D. With regard to gas, steam, air,
etc.:
10.
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1. Terminate service as
close to ceiling, wall
or floor as practical;
and
2. Terminate service line
in accordance with local
building codes.
(3) WALLS. Tenant shall remove from all
walls any unnecessary and or unused brackets, piping, fixtures, etc.
(4) FLOORS. Tenant shall leave all floors
free of all trash and debris. Tenant shall also remove any process residue and
repair any damage to the floors (i) caused by Tenant in removal of equipment or
(ii) significantly caused, aggravated or contributed to by Tenant during the
Term.
8. UTILITY AND JANITOR SERVICE. Tenant shall pay for all water,
sewer, gas, steam, standby sprinkler service, electric current, and all other
utilities used or consumed in the Premises for which separate metering has been
provided, at the rates charged by the utility providing the same, as and when
the charges for the same shall become due and payable, and shall, at its own
expense, furnish all security systems, fuel and janitor and other services
required in connection with the operation of the Premises. Tenant shall pay
Tenant's Proportionate Share of all utilities used and consumed in the Building
for which separate metering is not available, as provided in Paragraph 4. The
parties acknowledge that as of the Commencement Date of the Lease certain
electrical utilities are not separately metered. If during the course of the
Lease Tenant makes improvements to the Premises that separately meter such
utilities for Premises, Landlord shall provide Tenant with a credit of $30,000
towards such improvements. Landlord shall be responsible for the cost of
utilizing an energy management and monitoring system if such is required while
the Premises are not separately metered.
9. COMPLIANCE WITH LAWS. Except with respect to such matters that
are Landlord's obligations under Paragraph 7.1 (b)(i), Tenant agrees that in the
conduct of its business and occupancy of the Premises it shall comply with all
laws, ordinances, rules and regulations of all public authorities having any
jurisdiction over Tenant, the Premises or any part thereof.
10. INSURANCE.
10.1 PAYMENT FOR INSURANCE. Regardless of whether the Landlord
or Tenant is the Insuring Party, Tenant shall pay for all insurance required
under this Paragraph 10 except to the extent of the cost attributable to
liability insurance carried by Landlord. Premiums for policy periods commencing
prior to or extending beyond the Lease Term shall be prorated to correspond to
the Lease Term. Payment shall be made by Tenant to Landlord within ten (10)
days following receipt of an invoice for any amount due.
10.2 LIABILITY INSURANCE. Irrespective of whether the Landlord
or Tenant is the Insuring Party, Tenant shall obtain and keep in force during
the Term of this Lease a Commercial General Liability policy of insurance
protecting Tenant and Landlord (as an additional insured) against claims for
bodily injury, personal injury and property damage, based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
11.
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and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Landlords of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Tenant's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Tenant shall not, however, limit the liability of Tenant nor relieve
Tenant of any obligation hereunder. Tenant shall provide Landlord with written
evidence that such insurance is in force. All insurance to be carried by Tenant
shall be primary to and not contributory with any similar insurance carried by
Landlord, whose insurance shall be considered excess insurance only.
10.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force during the Lease Term a policy or policies in the name
of Landlord, with loss payable to Landlord and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. However, Tenant Owned Alterations and Utility Installations
shall be insured by Tenant under Paragraph 10.4 rather than by Landlord (unless
the item in question has become the property of Landlord under the terms of this
Lease). If the coverage is feasibly available and commercially appropriate,
such policy or policies shall insure against all risks of direct physical loss
or damage (except the perils of flood and/or earthquake unless required by a
Lender), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Premises required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
cause of loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $10,000 per occurrence, and Tenant shall
be liable for such deductible amount in the event of an Insured Loss, as defined
in Paragraph 12.1(c).
(b) ADJACENT PREMISES. If the Premises are part of a
larger building, or if the Premises are part of a group of buildings owned by
Landlord which are adjacent to the Premises, Tenant shall pay for any increase
in the premiums for the property insurance of such building or buildings to the
extent said increase is caused by Tenant's acts, omissions, use or occupancy of
the Premises.
12.
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10.4 TENANT'S PROPERTY INSURANCE. Subject to the requirements
of Paragraph 10.5, Tenant at its cost shall either by separate policy or, at
Landlord's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Tenant's personal property, Tenant Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by the Insuring Party under Paragraph 10.3. Such
insurance shall be full replacement cost coverage with a deductible of not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be
used by Tenant for the replacement of personal property or the restoration of
Tenant Owned Alterations and Utility Installations. Tenant shall be the
Insuring Party with respect to the insurance required by this Paragraph 10.4 and
shall provide Landlord with written evidence that such insurance is in force.
10.5 INSURANCE POLICIES. Insurance required hereunder shall be
in companies duly licensed to transact business in California, and maintaining
during the policy term a "General Policyholders Rating" of at least B+, V, or
such other rating as may be required by a Lender, as set forth in the most
current issue of "Best's Insurance Guide." Tenant shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in this
Paragraph 10. Tenant shall cause to be delivered to Landlord certified copies
of policies of such insurance or certificates evidencing the existence and
amounts of such insurance with the insured and loss payable clauses as required
by this Lease. No such policy shall be cancelable or subject to modification
except after thirty (30) days prior written notice to Landlord. Tenant shall at
least thirty (30) days prior to the expiration of such policies, furnish
Landlord with evidence of renewals or "insurance binders" evidencing renewal
thereof, or Landlord may order such insurance and charge the cost thereof to
Tenant, which amount shall be payable by Tenant to Landlord upon demand. If the
Insuring Party shall fail to procure and maintain the insurance required to be
carried by the Insuring Party under this Paragraph 10, the other party may, but
shall not be required to, procure and maintain the same, but at Tenant's
expense.
10.6 WAIVER OF SUBROGATION. Notwithstanding anything to the
contrary in this Lease, Tenant and Landlord (each a "Waiving Party") hereby
release and relieve the other, and waive their entire right to recover damages
(whether in contract or in tort) against the other, for loss of or damage to the
Waiving Party's property arising out of or incident to the perils actually
insured against under any such insurance policies carried by the parties in
force at the time of any such loss or damage and benefiting such Waiving Party.
The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto. The parties shall inform their respective
insurers of the foregoing waiver and shall cause their respective insurance
policies to provide that the insurer thereunder waives all rights of recovery by
way of subrogation as required herein in connection with any property damage
covered by the policy.
10.7 INDEMNITY. Except to the extent attributable to Landlord's
breach of express warranties or default under this Lease (including, without
limitation, Landlord's obligations under Paragraph 34 of this Lease), and/or the
gross negligence or willful misconduct of Landlord or its agents, Tenant shall
indemnify, protect, defend and hold harmless the Premises, Landlord and its
agents, Landlord's master or ground landlord, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, permits, attorney's and consultant's fees, expenses and/or
liabilities directly or indirectly arising out of or involving in any way the
occupancy of the Premises by Tenant, the
13.
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conduct of Tenant's business, any act, omission or neglect of Tenant, its
agents, contractors, employees, or out of any default or breach by Tenant in the
performance in a timely manner of any obligation on Tenant's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Landlord)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Landlord by reason of any of the
foregoing matters, Tenant upon notice from Landlord shall defend the same at
Tenant's expense by counsel reasonably satisfactory to Landlord and Landlord
shall cooperate with Tenant in such defense. Landlord need not have first paid
any such claim in order to be so indemnified.
10.8 EXEMPTION OF LANDLORD FROM LIABILITY. Except to the extent
attributable to Landlord's default under this Lease (including, without
limitation, Landlord's obligations under Paragraph 34 of this Lease), and/or the
gross negligence or willful misconduct of Landlord or its agents, Landlord shall
not be liable for injury or damage to the person or goods, wares, merchandise or
other property of Tenant, Tenant's employees, contractors, invitees, customers,
or any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant of Landlord.
10.9 INSURING PARTY. If the Premises are part of a larger
building, or if the portion of Building contained in the Premises is part of a
group of buildings which are adjacent to each other, then Landlord shall be the
Insuring Party for the property damage/casualty insurance under Paragraph
10.3(a) to be carried with respect to the Building only, and Tenant shall be the
Insuring Party for all other purposes of this Lease and in all other
circumstances.
11. COMMON AREA MAINTENANCE COSTS. Commencing with the Expense
Commencement Date (except for utilities which shall be payable from and after
the Commencement Date under Paragraph 8), to the extent not reimbursed to
Landlord by another tenant, Tenant shall pay Tenant's Proportionate Share of any
and all charges and expenses incurred by Landlord in connection with its
operation and maintenance of the Building and Land for a particular calendar
year, including, without limitation, plumbing systems, electrical systems,
heating, ventilation and air conditioning systems; license, permit and
inspection fees; maintenance, operation and repair of the Building; amortization
of capital improvements or replacements for the Building together with interest
at the rate of the lesser of 12% per annum or the maximum rate allowable under
law on the unamortized balance thereof; and in general all other costs and
expenses which would, under generally accepted accounting principals be regarded
as operating and maintenance costs and expenses. The preceding list of common
area maintenance costs is for definitional purposes only and shall not impose
any obligations upon Landlord to incur such expenses or provide such services,
except as herein specifically provided.
14.
<PAGE>
Tenant shall promptly pay Tenant's Proportionate Share of such common
area maintenance costs as provided in Paragraph 4.
Notwithstanding anything to the contrary in the definition of common area
maintenance costs set forth in this Lease, common area maintenance costs shall
not include the following:
(i) depreciation on the Building;
(ii) interest, principal, points and fees on debt or
amortization on any mortgages and deeds of trust or other debt instruments
secured by the Building or the Land or any underlying ground lease;
(iii) costs of special services rendered to individual tenants
(including Tenant) for which a special charge is made to such tenant;
(iv) all costs, expenses, penalties, damages, fines and
judgments as a result of or in connection with the presence of any Hazardous
Substances at the Premises or a Hazardous Substance Condition;
(v) Landlord's general corporate overhead and general and
administrative expenses; and
(vi) marketing costs, including, without limitation, leasing
commissions, attorneys' fees, space planning costs and other costs and expenses
incurred in connection with the leasing of the Building to a tenant.
12. DAMAGE OR DESTRUCTION OF PREMISES AND USE OF INSURANCE PROCEEDS.
12.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, other than Tenant Owned
Alterations and Utility Installations, the repair cost of which damage or
destruction is less than 50% of the then Replacement Cost of the Premises
immediately prior to such damage or destruction, excluding from such calculation
the value of the land and Tenant Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Tenant Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the Land and Tenant
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Tenant Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 10.3(a), irrespective of any deductible amounts
or coverage limits involved.
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(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Landlord at the time of the occurrence to
their condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 34, in, on, or
under the Premises.
12.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Landlord shall, at Landlord's expense,
repair such damage (but not Tenant's Trade Fixtures or Tenant Owned Alterations
and Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; PROVIDED, HOWEVER, that Tenant shall, at
Landlord's election, make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Landlord shall make
the insurance proceeds available to Tenant on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Tenant's responsibility) as and when required to
complete said repairs. In the event, however, the shortage in proceeds was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Landlord shall have no obligation to pay for the shortage in
insurance proceeds or to fully restore the unique aspects of the Premises unless
Tenant provides Landlord with the funds to cover same, or adequate assurance
thereof, within ten (10) days following receipt of written notice of such
shortage and request therefor. If Landlord receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Landlord does not receive such
funds or assurance within said period, Landlord may nevertheless elect by
written notice to Tenant within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Landlord paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If in such case Landlord does not so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Tenant shall in no event have any right to
reimbursement from Landlord for any funds contributed by Tenant to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
shall be subject to Paragraph 12.3 rather than Paragraph 12.2, notwithstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either party.
12.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial
Damage that is not an Insured Loss occurs, unless caused by a negligent or
willful act of Tenant (in which event Tenant shall make the repairs at Tenant's
expense and this Lease shall continue in full force and effect, but subject to
Landlord's rights under Paragraph 15), Landlord may at Landlord's option,
either: (i) repair such damage as soon as reasonably possible at Landlord's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Tenant within thirty (30) days after receipt by
Landlord of knowledge of the occurrence of such damage of
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Landlord's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Landlord elects to give such
notice of Landlord's intention to terminate this Lease, Tenant shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Landlord of Tenant's commitment to pay for the repair of such damage
totally at Tenant's expense and without reimbursement from Landlord. Tenant
shall provide Landlord with the required funds or satisfactory assurance thereof
within thirty (30) days following Tenant's said commitment. In such event this
Lease shall continue in full force and effect, and Landlord shall proceed to
make such repairs as soon as reasonably possible and the required funds are
available. If Tenant does not give such notice and provide the funds or
assurance thereof within the times specified above, this Lease shall terminate
as of the date specified in Landlord's notice of termination.
12.4 TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs (including any destruction
required by any authorized public authority), this Lease shall terminate as of
the date of such Premises Total Destruction, whether or not the damage or
destruction is an Insured Loss or was caused by a negligent or willful act of
Tenant. In the event, however, that the damage or destruction was caused by
Tenant, Landlord shall have the right to recover Landlord's damages from Tenant
except as released and waived in Paragraph 10.6.
12.5 DAMAGE NEAR END OF TERM. If at any time during the last
six (6) months of the Lease Term there is damage for which the cost to repair
exceeds three (3) month's Basic Rent, whether or not an Insured Loss, Landlord
or Tenant may, at such party's option, terminate this Lease effective sixty (60)
days following the date of occurrence of such damage by giving written notice to
the other party of the notifying party's election to do so within thirty (30)
days after the date of occurrence of such damage, PROVIDED, HOWEVER, if Tenant
at that time has an exercisable option to extend this Lease which has not
expired, then Tenant may preserve this Lease by, within twenty (20) days
following the occurrence of the damage, or before the expiration of the time
provided in such option for its exercise, whichever is earlier ("Exercise
Period"), (i) exercising such option and (ii) providing Landlord with any
shortage in insurance proceeds (or adequate assurance thereof) needed to make
the repairs. If Tenant duly exercises such option during said Exercise Period
and provides Landlord with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Landlord shall, at Landlord's expense repair
such damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Tenant fails to exercise such option and provide such
funds or assurance during said Exercise Period, then Landlord may at Landlord's
option terminate this Lease as of the expiration of said sixty (60) day period
following the occurrence of such damage by giving written notice to Tenant of
Landlord's election to do so within ten (10) days after the expiration of the
Exercise Period, notwithstanding any term or provision in the grant of option to
the contrary.
12.6 ABATEMENT OF RENT; TENANT'S REMEDIES. If Landlord shall be
obligated to repair or restore the Premises under the provisions of this
Paragraph 12 and shall not commence, in a substantial and meaningful way, the
repair or restoration of the Premises within ninety (90) days after such
obligation shall accrue, Tenant may, at any time prior to the commencement of
such repair or restoration, give written notice to Landlord and to any Lenders
of which Tenant has actual notice of Tenant's election to terminate this Lease
on a date not less
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than thirty (30) days following the giving of such notice. If Tenant gives such
notice to Landlord and such Lenders and such repair or restoration is not
commenced within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Landlord or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after receipt of such notice, this Lease shall continue in full force and
effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
12.7 HAZARDOUS SUBSTANCE CONDITIONS. Except as otherwise set
forth in this Lease, to the extent any Hazardous Substance Condition is caused
or materially contributed to by Tenant, or pertains to or involves any Hazardous
Substance for which Tenant is responsible under this Lease, Tenant or, at
Landlord's option Landlord, shall make the investigation and remediation as
required by Applicable Law and Paragraphs 7.1 and 34 of the Lease at Tenant's
expense, and this Lease shall continue in full force and effect, but subject to
Landlord's rights under Paragraphs 7 and 34 of this Lease.
12.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Paragraph 12, an equitable adjustment shall be made
concerning advance Basic Rent and any other advance payments made by Tenant to
Landlord. Landlord shall, in addition, return to Tenant so much of Tenant's
Security Deposit as has not been, or is not then required to be, used by
Landlord under the terms of this Lease.
12.9 WAIVE STATUTES. Landlord and Tenant agree that the terms
of this Lease shall govern the effect of any damage to or destruction of the
Premises with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent inconsistent herewith.
13. CONDEMNATION. If the Premises or any portion thereof are taken
under the power of eminent domain or sold under the threat of the exercise of
such power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If more than ten percent of the
rentable floor area of the Building within the Premises is taken by
condemnation, Tenant may, at Tenant's option, to be exercised in writing within
ten days after Landlord shall have given Tenant written notice of such taking
(or in the absence of such notice, within ten days after the condemning
authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Tenant does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Basic
Rent shall be reduced in the same proportion as the rentable floor area of the
Building within the Premises taken bears to the total rental floor area of the
Building located in the Premises. No reduction in Basic Rent shall occur if the
only portion of the Premises taken is land on which there is no building;
however, if such taking materially interferes with Tenant's access to and egress
from the Premises, Landlord and Tenant shall cooperate to establish reasonable
access and egress in view of such taking. Any award for the taking of all or
any part of the Premises under the power of eminent domain or any payment made
under the threat of exercise of such power shall be the property of Landlord,
whether such award shall be made as compensation or diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided
however, that Tenant shall be entitled to any
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compensation, separately awarded to Tenant for Tenant's relocation expenses
and/or loss of Trade Fixtures. In the event that this Lease is not terminated
by reason of such condemnation, Landlord shall, to the extent of its net
severance damages received, over and above the legal and other expenses incurred
by Landlord in the condemnation matter, repair any damage to the Premises
caused by such condemnation, except to the extent that Tenant has been
reimbursed therefor by the condemning authority. Tenant shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair.
14. ASSIGNMENT AND SUBLETTING.
(a) TENANT MAY NOT ASSIGN EXCEPT AS PROVIDED HEREIN/LANDLORD'S
CONSENT REQUIRED.
(i) Tenant shall not voluntarily or by operation of law
or merger assign, transfer, mortgage or otherwise transfer, encumber or sublet
all or any part of Tenant's interest in this Lease or in the Premises (an
"assignment"), without first obtaining Landlord's prior written consent, which
consent shall not be unreasonably withheld. In connection with any such request
by Tenant for Landlord's consent hereunder, Tenant shall provide to Landlord all
financial and other information (including information as to the prospective
assignee's intended use of the Premises with regard to the generation, storage,
use, treatment or disposal of Hazardous Substances) reasonably requested by
Landlord concerning the prospective assignee or sublessee. Landlord shall
respond within thirty (30) days to a request by Tenant for Landlord's consent as
provided herein following Landlord's receipt of such information.
(ii) A change in the control of Tenant (as defined
herein) shall constitute an assignment for the purposes hereunder. The
transfer, on a cumulative basis, in one or more transactions (including any
merger or consolidation) occurring from the Commencement Date through the date
of the last transfer to occur, of fifty percent (50%) or more of the voting
control of Tenant shall constitute a change of control and an assignment for
purposes hereunder; however, the mere dilution in such control resulting from
the issuance of common stock of Tenant in connection with a public offering of
such stock that is registered under the Securities Act of 1933, as amended,
shall not be deemed a change in control so long as there is no material change
in the management of Tenant in connection with such offering.
(A) Notwithstanding anything to the contrary
contained in Paragraphs 14 (i) and 14 (ii), Landlord agrees that Landlord's
prior written consent shall not be required under such Paragraphs 14 (i) and
(ii) for an assignment or subletting to any entity ("Transferee") (x) which
controls, is controlled by, or is under common control with Tenant for the
purpose of such entity conducting all or part of the business conducted by
Tenant, (y) which results from a reincorporation, merger, or consolidation with
Tenant, where such entity shall conduct the business previously conducted by
Tenant, or (z) which acquires substantially all of the stock or assets of
Tenant; provided: (1) such Transferee, except in the case of clause (x), above,
has a net worth (calculated on the same basis as Net Worth of Tenant, below)
equal to Tenant's as of the Commencement Date, (2) Landlord is provided written
notice within ten days of such transaction and a copy of the applicable
documents representing the transaction, and (3) any such transaction shall not
be, in whole or in part, part of a series of transaction which are a subterfuge
or attempt to avoid the restrictions of this Paragraph 14 (the foregoing,
hereinafter, a
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"Permitted Transfer"). Nothing herein shall relieve Tenant of any liability
under this Lease in the event of any assignment, subletting or other transfer,
whether pursuant to a Permitted Transfer or otherwise.
(iii) The involvement of Tenant or its assets in any
transaction, or series of transactions (by way of sale, acquisition, financing,
refinancing, merger, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Tenant's assets occurs,
which results or will result (at the time immediately after the transaction or
series of transactions) in a reduction of the Net Worth of Tenant as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Tenant as it was represented to Landlord at the time of the
execution by Landlord of this Lease or at the time of the most recent assignment
to which Landlord has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, at whichever time said
Net Worth of Tenant was or is greater, shall be considered an assignment of this
Lease by Tenant to which Landlord may reasonably withhold its consent. "Net
Worth of Tenant" for purposes of this Lease shall be the net worth of Tenant
(excluding any guarantors) established under generally accepted accounting
principles consistently applied.
(b) TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND
SUBLETTING.
(i) Any assignment or subletting shall not: (i) be
effective without the express written assumption by such assignee or sublessee
of the obligations of Tenant under this Lease (which, in the case of a sublease,
as such obligations pertain to the portion of the Premises and Term as pertain
to such sublease), (ii) release Tenant of any obligations hereunder, or (iii)
alter the primary liability of Tenant for the payment of Basic Rent and other
sums due Landlord hereunder or for the performance of any other obligations to
be performed by Tenant under this Lease.
(ii) Landlord may accept any rent or performance of
Tenant's obligations from any person other than Tenant pending approval or
disapproval of an assignment. Neither a delay in the approval or disapproval of
such assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Landlord's right to exercise its remedies for the default
or breach by Tenant of any of the terms, covenants or conditions of this Lease.
(iii) The consent of Landlord to any assignment or
subletting shall not constitute a consent to any subsequent assignment or
subletting by Tenant or to any subsequent or successive assignment or subletting
by the sublessee. However, Landlord may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Tenant or anyone else liable on this Lease or sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or any sublease.
(iv) In the event of any default or breach of Tenant's
obligations under this Lease, Landlord may proceed directly against Tenant or
any one else responsible for the performance of the Tenant's obligations under
this Lease, including the sublessee, without first
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exhausting Landlord's remedies against any other person or entity responsible
therefor to Landlord, or any security held by Landlord or Tenant.
(v) Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to
Landlord's determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of Five Hundred Dollars ($500) as
reasonable consideration for Landlord's considering and processing the request
for consent. Tenant agrees to provide Landlord with such other or additional
information and/or documentation as may be reasonably requested by Landlord.
(vi) Any assignee of, or sublessee under, this Lease
shall, by reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Landlord, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to be
observed or performed by Tenant during the term of said assignment or sublease
other than such obligations as are contrary to or inconsistent with provisions
of any assignment or sublease to which Landlord has specifically consented in
writing.
(vii) The occurrence of a transaction described in
Paragraph 14(a)(iii) shall give Landlord the right (but not the obligation) to
require that the Security Deposit be increased to an amount equal to three (3)
times the then monthly Basic Rent, and Landlord may make the actual receipt by
Landlord of the amount required to establish such Security Deposit a condition
to Landlord's consent to such transaction.
(c) ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
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 all subleases
under this Lease whether or not expressly incorporated therein:
(i) Tenant hereby assigns and transfers to Landlord all
of Tenant's interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by Tenant, and
Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; PROVIDED, HOWEVER, that until a Default (as
defined herein) shall occur in the performance of Tenant's obligations under
this Lease, Tenant may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Landlord shall not,
by reason of this or any other assignment of such sublease to Landlord, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Tenant to perform and comply with any of Tenant's
obligations to such sublessee under such sublease. Tenant hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Landlord stating that a breach exists in the performance of Tenant's obligations
under this Lease, to pay to Landlord the rents and other charges due and to
become due under the sublease. Sublessee shall rely upon any such statement and
request from Landlord and shall pay such rents and other charges to Landlord
without any obligation or right to inquire as to whether such breach exists and
notwithstanding any notice from or claim from Tenant to the contrary. Tenant
shall have no
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right or claim against said sublessee, or, until the breach has been cured,
against Landlord, for any such rents and other charges so paid by said sublessee
to Landlord.
(ii) In the event of a breach by Tenant in the
performance of its obligations under this Lease, Landlord, at its option and
without any obligation to do so, may require any sublessee to attorn to
Landlord, in which event Landlord shall undertake the obligations of the
sublessor under such sublease from the time of the exercise of said option to
the expiration of such sublease; PROVIDED, HOWEVER, Landlord shall not be liable
for any prepaid rents or security deposit paid by such sublessee to such
sublessor or for any other prior defaults or breaches of such sublessor under
such sublease.
(iii) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Landlord herein.
(iv) No sublessee shall further assign or sublet all or
any part of the Premises without Landlord's prior written consent in accordance
with Paragraph 14(a) of this Lease.
(d) RECAPTURE OF THE LEASE; EXCESS RENT. In addition to the
Rent and all monetary sums normally payable to Landlord by Tenant hereunder,
Tenant agrees to further pay to Landlord, fifty percent (50%) of all rents and
moneys received by Tenant from its permitted sublease or assignment in excess of
the rent and moneys Tenant is obligated to pay to Landlord. Landlord further
has the right to recapture the Lease and the Premises (except in the case of a
Permitted Transfer made in accordance with Paragraph 14) upon the consummation
of a sublease or assignment of 100% of the then remaining estate provided that
Landlord elects such right to recapture by providing written notice to Tenant
with 30 days following written notice from Tenant of such sublease or
assignment. Except as to a Permitted Transfer made in accordance with Paragraph
14, any sublease or assignment permitted herein shall automatically terminate
Tenant's option(s), if any, to extend the term of this Lease and Tenant's
options under Paragraphs 35.1 and 35.2, and no such options shall not be
available to any such assignee, sublessees or other transferee.
15. TERMINATION/DEFAULT.
(a) Tenant agrees that if, at any time during the Term, (i)
Tenant shall be in default in the payment of any Basic Rent or Additional Rent
or other sums due under this Lease when the same are due and payable, where such
default continues for a period of three business days following written notice
thereof by or on behalf of Landlord; or (ii) Tenant shall neglect or fail to
perform or observe any of the other covenants contained in this Lease on
Tenant's part to be performed or shall have violated or breached any other
provision of this Lease, and shall not have remedied the same within fifteen
(15) days after written notice thereof given by Landlord PROVIDED, HOWEVER,
(except with respect to an unauthorized assignment or subletting that is not a
Permitted Transfer, or the failure by Tenant to provide (a) a Tenancy Statement,
(b) a requested subordination, or (c) any document requested under Paragraph 47
or any other documentation which Landlord may reasonably require of Tenant under
the terms of this Lease, including written evidence of Tenant's compliance with
Applicable Law) if the nature of the event is such that more than 15 days are
reasonably required for its cure, then it shall not be deemed a Default
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if Tenant commences such cure within such 15 days period and thereafter
diligently prosecutes such cure to completion; or (iii) any execution or
attachment shall be issued against Tenant and such execution or attachment shall
not be discharged within 60 days after levy or seizure thereunder; or (iv)
Tenant shall violate any provision of any of the insurance policies referred to
herein so that such policy shall be void or unenforceable in whole or in part
and Tenant shall not either abate such violation and cause such policy to be
reinstated or procure other insurance in the same amount, which shall conform to
the provisions of Paragraph 10 hereof, and shall be enforceable; or (v) Tenant
shall in any way fail to perform and satisfy the requirements of any insurance
policy referred to herein; or (vi) there shall be filed against Tenant in any
court, pursuant to any statute either of the United States or of any state
thereof, a petition alleging bankruptcy or insolvency of Tenant, or for
reorganization of Tenant, or for the appointment of a receiver or trustee of all
or a portion of Tenant's property, and any such petition is not dismissed within
60 days after such filing, or any receiver or trustee so appointed is not
discharged within 60 days after such appointment, or any petition is filed by
Tenant, or Tenant makes an assignment for the benefit of creditors, or
substantially all of Tenant's assets located at the Premises or Tenant's
interest in this Lease are attached, executed on or otherwise judicially seized
where such seizure is not discharged within 30 days, or (vii) the abandonment of
the Premises; then, and in any one or more such events (each, a "Default"), then
without any further notice or demand, and without limiting the remedies of
Landlord hereunder, Landlord shall have the right to terminate the Lease, with
the same force and effect as though the date so specified were the date
hereinabove set forth as the date of the expiration of this Lease, and neither
Tenant nor any person claiming through or under Tenant by virtue of any statute
or order of any court or otherwise, shall be entitled to possession or to remain
in possession of the Premises, but shall forthwith quit and surrender the same.
In the event of such termination, Landlord may reenter the Premises and take
possession of the same by summary proceedings, reentry or otherwise, and remove
all persons and/or any property from the Premises without being liable to
indictment, prosecution or damages therefor, and without prejudice to any other
rights which it may have by reason of such breach, default, matter or condition.
(b) If Tenant fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Landlord may, at its option, perform such duty or
obligation on Tenant's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Landlord shall
be due and payable by Tenant upon receipt of invoice therefor. If any check
given to Landlord by Tenant shall not be honored by the bank upon which it is
drawn, Landlord, at its option, may require all future payments to be made by
Tenant to be by cashier's check. In the event of a Default, Landlord may, with
or without notice or demand, and without limiting Landlord in the exercise of
any right or remedy which Landlord may have by reason of such Default:
(i) 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 to Landlord. In such event
Landlord shall be entitled to recover from Tenant: (i) the unpaid Rent which had
been earned at the time of termination; (ii) the worth at time of award of the
amount by which the unpaid rent which would have been earned after the
termination until the time of award exceeds the amount of such rental loss that
the Tenant proves
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could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the Term after the time of
the award exceeds the amount of such rental loss that the Tenant proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by the Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and that
portion of any leasing commission paid by Landlord in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of the award plus one percent (1%). Efforts by Landlord to mitigate
damages caused by Tenant's Breach of this Lease shall not waive Landlord's right
to recover damages hereunder. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Landlord shall have the right to
recover such proceeding unpaid Rent and damages as are recoverable herein, or
Landlord may reserve the right to recover all or any part thereof in a separate
suit. If a notice and grace period under the Paragraph 15(a) was not previously
given, a notice to pay rent or quit, or to perform or quit given to Tenant under
the unlawful detainer statute shall also constitute the notice required by
Paragraph 15. In such case, the applicable grace period required by Paragraph
15(a) and the unlawful detainer statute shall run concurrently, and the failure
of Tenant to cure any breach within the greater of the two such grace periods
shall constitute both an unlawful detainer and Default of this Lease entitling
Landlord to the remedies provided for in this Lease and/or by said statute.
(c) Continue the Lease and Tenant's right to possession
and recover the Rent as it becomes due, in which event Tenant may sublet or
assign, subject only to reasonable limitations. Acts of maintenance, efforts to
relet, and/or the appointment of a receiver to protect the Landlord's interests,
shall not constitute a termination of the Tenant's right to possession.
(d) Pursue any other remedy now or hereafter available
under the laws or judicial decisions of California. The expiration or
termination of this Lease and/or the termination of Tenant's right to possession
shall not relieve Tenant from liability under any indemnity provisions of this
Lease as to matters occurring or accruing during the term hereof or by reason of
Tenant's occupancy of the Premises. Mention in this Lease of any particular
remedy shall not preclude Landlord from any other remedy, in law or in equity
(including without limitation any remedy available under California Civil Code
Section 1951.4) and shall be cumulative with respect to all other available
remedies. Tenant hereby expressly waives any and all rights of redemption,
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed, or in the event of Landlord obtaining possession of the
Premises, by reason of the violation by Tenant of any of the covenants and
conditions of this Lease. Tenant hereby waives service of notice of intention
to reenter or to institute legal proceedings or dispossession proceedings.
Any sums which are not paid by Landlord or Tenant when same
shall become due and payable shall be paid to the other party with interest at a
rate per annum equal to
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the lesser of (i) two (2) percent over the rate per annum announced from time to
time by CHASE MANHATTAN BANK, N.A. of New York as its prime or base lending rate
or other equivalent rate (the "Default Interest Rate") or (ii) the maximum rate
allowable under applicable law.
(e) Landlord shall not be deemed to be in breach of this
Lease unless Landlord fails within a reasonable time to perform an obligation
required to be performed by Landlord. For purposes of this paragraph, a
reasonable time shall in no event be less than 30 days after receipt by Landlord
of written notice specifying such obligation of Landlord that has not been
performed: PROVIDED; HOWEVER, that if the nature of such obligation is such that
more than 30 days are reasonably required for its performance, then Landlord
shall not be in breach if performance is commenced within such 30 day period and
thereafter diligently pursued to completion.
16. INSPECTION BY LANDLORD. Subject to governmental or other security
regulations, Landlord by any duly authorized agent or representative shall have
access to the Premises and each and every part thereof at any and all reasonable
time or times during business hours to inspect the same for any purpose
including, without limitation of the foregoing, the determination of the
condition of the Premises or any part thereof, the progress of any work
undertaken by Tenant, and generally Tenant's performance of and compliance with
the terms and provisions of this Lease.
17. HOLD-OVER. Tenant shall, at the termination of this Lease by
lapse of time or otherwise yield up immediate possession to Landlord, and
failing so to do, it shall be deemed a tenant from month to month only, at a
monthly rental equal to 150% the rental paid by Tenant for the last preceding
month. In such event the rights, duties and obligations of Landlord and Tenant
shall be governed, except as to rent and duration of the term, by the provisions
of this Lease.
18. SUBORDINATION.
(a) This Lease is made subject to restrictions, covenants,
easements, encumbrances, reservations and rights of way, which may now or
hereafter affect the Premises. Tenant agrees, without the necessity of any
further consideration or action, to subordinate all of its right, title and
interest in and to this Lease to the lien of any mortgage or deed of trust now
or hereafter encumbering the Premises or any portion thereof, and to all
advances made or hereafter to be made upon the security thereof, PROVIDED,
HOWEVER, (i) that the beneficiary or beneficiaries of any such mortgages and/or
deeds of trust provide a written agreement delivered to Tenant to recognize all
of Tenant's right, title and interest in and to this Lease and not disturb
Tenant's possession or quiet enjoyment of the Premises as provided in this Lease
so long as Tenant is not in Default or breach of this Lease, (ii) that all terms
of such indebtedness, including, without limitation, the precise amount thereof
and the interest rate with respect thereto, shall be as determined solely by
Landlord and such beneficiary or beneficiaries, and (iii) Tenant within ten (10)
days after Landlord or such beneficiary or beneficiaries provides Tenant with
written notice to do so, or as soon thereafter as practicably possible, shall
execute and deliver to Landlord such documents and take such further action as
Landlord or such beneficiary or beneficiaries may deem necessary or advisable to
effect or maintain such subordination. Tenant also agrees that any mortgagee or
beneficiary may elect to have this Lease constitute a lien prior to its mortgage
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or deed of trust, and in the event of such election and upon notification by
such mortgagee or beneficiary to Tenant to that effect, this Lease shall be
deemed prior lien to such mortgage or deed of trust, whether this Lease is dated
prior to or subsequent to the date of said mortgage or deed of trust. In the
event any of Landlord's lenders require, as a condition to financing,
modifications to this Lease, then, provided such modifications do not materially
change Tenant's obligations hereunder, Tenant agrees to make reasonable
non-monetary modifications to this Lease as may be reasonably required by any
such lenders, and Landlord shall submit to Tenant a written amendment with such
required modifications which Tenant shall execute and return to Landlord within
ten (10) days after Tenant's receipt thereof; PROVIDED, HOWEVER, any
modification of any provision of this Lease directly relating to environmental
matters or Hazardous Substances or the rights and obligations of the Parties
directly relating thereto may not be made without Tenant's prior written
consent, which consent shall not be unreasonably withheld. If Tenant fails to
execute and return the same or object stating a reasonable basis for such
objection within said ten (10) day period, Tenant shall be deemed to have
consented for the purposes herein.
(b) Tenant agrees that (i) upon delivery to Landlord of the
written election of the beneficiary or beneficiaries of any encumbrance
affecting the Premises which is superior to this Lease, that such encumbrance
shall be deemed subordinate to this Lease, (a) this Lease shall, without the
necessity of any further consideration or action whatsoever, be deemed superior
to such encumbrance, whether this Lease was executed before or after the
execution of such encumbrance, and (b) the beneficiary or beneficiaries of such
encumbrance shall have the same rights with respect to this Lease as if this
Lease had been executed and delivered prior to execution and delivery of such
encumbrance and had thereafter been assigned to such beneficiary or
beneficiaries and (ii) if, by reason of Landlord's default under any encumbrance
now or hereafter affecting the Premises in any way, any or all of Landlord's
interest in and to the Premises is terminated, Tenant (a) shall waive all rights
at law or in equity now or hereafter in effect to terminate this Lease and
surrender possession of the Premises, shall attorn to the transferee (whether by
foreclose, judicial or trustees' sale deed in lieu of foreclosure or otherwise)
of any or all of Landlord's interest in or to the Premises, and shall recognize
such transferee and its transferees as the Landlord under this Lease, provided
and only if such transferee and any and all of its transferees, in writing to be
delivered to Tenant, recognize Tenant under all of the terms of this Lease and
agree in writing not to disturb Tenant's possession or quiet enjoyment of the
Premises as provided in this Lease so long as Tenant is not in default or breach
of this Lease, and (b) shall execute and deliver to Landlord and to such
transferee and its transferees within ten (10) days after Landlord, such
transferee or its transferees, provides Tenant with written notice to do so, or
as soon thereafter as practicably possible, such documents and take such further
action as Landlord, such transferee and its transferees may deem necessary or
advisable to effect or maintain such attornment.
(c) Effective as the Commencement Date of this Lease, Landlord
represents and warrants to Tenant that Landlord has fee title to the Premises,
the improvements thereon and the land of which the Premises are a part.
(d) The agreements contained in this Paragraph 18 shall be
effective without the execution of any further documents; PROVIDED, HOWEVER,
that, upon written request from Landlord or a lender in connection with a sale,
financing or refinancing of the Premises, Tenant
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and Landlord shall execute such further writings as may be reasonably required
to separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
19. INDEMNIFICATION. Except to the extent attributable to Landlord's
default under this Lease and/or the gross negligence or willful misconduct of
Landlord or its agents, Tenant agrees to indemnify, defend and save harmless
Landlord against and from any and all claims by or on behalf of any person, firm
or corporation arising from the use, occupancy, conduct or management of or from
any work or thing whatsoever done in or about the Premises, arising or accruing
from and after the Commencement Date (but excluding these matters which are (i)
Landlord's responsibility under Paragraph 34 (ix)(B) and (ii) those matters
excluded from Tenant's indemnity under clause z of Paragraph 34 (ix)(A)) and
will further indemnify, defend and save Landlord harmless against and from any
and all claims arising or accruing during the Term of this Lease from any
condition of the Premises or any street, curb or sidewalk adjoining the
Premises, or of passageways or spaces therein or appurtenant thereto, or arising
from any act of Tenant, or any of its agents, contractors, servants, employees
or licensees, or arising from any accident, injury or damage whatsoever to any
person, firm or corporation occurring during the Term of this Lease, in or about
the Premises, or upon the sidewalks and land adjacent thereto, and from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed, pursuant to the terms of this
Lease; and from and against all costs, counsel fees, expenses, liabilities
incurred in or related to any of the foregoing; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord covenants to resist or defend such action or proceeding by
counsel reasonably satisfactory to Landlord.
Tenant is fully familiar with the physical condition of the
Premises, the buildings, improvements, fixtures and equipment thereof. Landlord
has made no representations of whatever nature in connection with the condition
of the Premises or of the buildings, improvements, fixtures or equipment thereof
and the Landlord shall not be liable for any latent or patent defects therein.
Tenant covenants and agrees to pay, and to indemnify Landlord
against, all legal costs and charges, including counsel fees, lawfully and
reasonably incurred in obtaining possession of the Premises after default of
Tenant or upon expiration or earlier termination of the term of this Lease, or
in enforcing any covenant or agreement of Tenant herein contained. Tenant's
obligations under this paragraph 19 shall survive any expiration or termination
of this Lease.
20. QUIET ENJOYMENT. Landlord for itself and Landlord's successors
and assigns covenants with Tenant that upon performing the covenants hereunder
on its part to be performed and subject to the provisions of this Lease, Tenant
shall and may peaceably and quietly have, hold and enjoy the Premises without
let or hindrance of any person claiming by, through or under Landlord.
21. REMEDIES CUMULATIVE. No remedy or election given by any provision
in this Lease shall be deemed exclusive unless so indicated, but each shall
wherever possible be cumulative with all other remedies in law or equity, except
as otherwise specifically provided.
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22. WAIVER: AMENDMENT. A waiver by Landlord or Tenant of any default
or breach by the other party of any covenant or covenants of this Lease shall be
limited to the particular instance and shall not operate or be deemed as a
waiver of any future defaults or breaches of said covenant or covenants. This
Lease may be modified only in writing, signed by the parties in interest at the
time of modification.
23. NOTICES. All notices and formal requests or demands required or
appropriate hereunder shall be in writing and personally delivered or sent by
registered or certified mail and shall be deemed to have been served or given
when personally delivered or enclosed in a properly sealed and addressed
envelope or wrapper, and deposited postage prepaid in a post office, branch post
office, or post office box regularly maintained by the United States Government.
Notices to Landlord shall be delivered or addressed to it at Teledyne
Industries, Inc., 2049 Century Park East, Suite 1500, Los Angeles, California
90067, Attention: Corporate Real Estate Director or to such other person and
place as Landlord may from time to time designate in writing, and notices to
Tenant shall be delivered or addressed to Tenant at CLONTECH Laboratories, Inc.,
1020 East Meadow Circle, Palo Alto, California 94303, Attention: President, or
to such other person or place as Tenant may from time to time designate in
writing.
24. DEFINITION OF TENANT'S PROPORTIONATE SHARE. Whenever used in this
Lease, the term "Tenant's Proportionate Share" shall mean Landlord's total costs
for such item or items multiplied by a fraction, the numerator of which shall be
the floor area of the Building within the Premises and the denominator of which
shall be the floor area of the Building, whether within or without the Premises.
25. SUCCESSORS AND ASSIGNS. Subject to the provisions of Paragraph 14
hereof, this Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
26. SIGNS. Tenant shall not place any signs upon the Premises, except
that Tenant may, with Landlord's prior written consent, install (but not on the
roof) such signs as are reasonably necessary to advertise Tenant's own business.
The installation of any sign on the Premises by or for Tenant shall be subject
to the provisions of Paragraph 7. Unless otherwise expressly agreed herein,
Landlord expressly reserves all rights to the use of the roof and the right to
install (and all revenues therefrom) such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Tenant's business.
27. PARAGRAPH HEADINGS. The paragraph headings inserted in this Lease
are for convenience only and are not intended to and shall not be considered to
limit, enlarge or affect the scope or intent of this Lease nor the meaning of
any provision hereof.
28. USE. Tenant is hereby given the privilege of using the Premises
for general office, research, development and production (including temporary
storage of raw material inventory), shipping and receiving of biological and
medical products and supplies for molecular biologists and related uses thereto,
and for no other purpose. At all times during the Term, Tenant's use of the
Premises shall be as permitted by and in conformity with all applicable zoning,
building and other ordinances and laws, including, without limitation, all
environmental
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laws (and all rules, orders and regulations issued pursuant thereto) and in
conformity with all applicable restrictions and conditions of record and for no
other purpose or purposes.
29. FURTHER ASSURANCES. The parties shall execute such further
documents and instruments and shall take or cause to be taken such further
action as either party shall reasonably request from time to time in order to
effectuate the terms and conditions of this Lease.
30. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall fail to
perform or observe any term, covenant, condition or obligation required to be
performed or observed by it under this Lease and if Tenant shall, as a
consequence thereof, recover a money judgment against Landlord, Tenant agrees
that it shall look solely to Landlord's right, title and interest in and to the
Building and Land for the collection of such judgment and Tenant further agrees
that no other assets of Landlord shall be subject to execution, levy or other
process for the satisfaction of Tenant's judgment, and that in no event shall
Landlord be liable for any deficiency or punitive, consequential or incidental
damages of any type or nature.
31. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. Tenant covenants
and agrees that if it shall at any time fail to make any payment or perform any
other act on its part to be made or performed as in this Lease provided, then
Landlord may, but shall not be obligated so to do, and with due notice to or
demand upon Tenant, and without waiving or releasing Tenant from any obligations
of Tenant in this Lease contained, may make any such payment or perform any
other act on the part of Tenant to be made and performed as in this Lease
provided, in such manner and to such extent as Landlord may reasonably deem
desirable, and in exercising any such rights to pay necessary and incidental
costs and expenses, employ counsel and incur and pay reasonable attorney's fees.
All sums so paid by Landlord and all necessary and incidental costs and expenses
in connection with the performance of any such act by Landlord, together with
interest thereon at the Default Interest Rate from the date of the making of
such expenditure by Landlord, shall be deemed Additional Rent hereunder and,
except as otherwise in this Lease expressly provided, shall be payable to
Landlord on demand or at the option of Landlord may be added to any rent then
due or thereafter becoming due under this Lease, and Tenant covenants to pay any
such sum or sums with interest as aforesaid and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of the non-payment thereof by Tenant as in the case of default by Tenant
in the payment of Rent. Whenever reasonably practicable, Landlord, before
proceeding as provided in this Paragraph, shall give Tenant notice in writing of
the failure of Tenant that Landlord proposes to remedy, and shall allow to
Tenant such length of time as may be reasonable in the circumstances, not
exceeding fifteen (15) days from the giving of the notice (unless such default
cannot be reasonably cured within said fifteen (15) day period, in which event,
if Tenant shall commence within said fifteen (15) day period and thereafter
prosecute with diligence the curing of such default, said fifteen (15) day
period shall be extended for such reasonable length of time as may be required
to enable Tenant to cure such default) to remedy the failure itself and if the
Tenant shall not remedy the failure in the time so allowed, the Landlord may
proceed as provided in this Paragraph; PROVIDED, HOWEVER, that nothing in this
sentence shall prevent the Landlord's effecting forthwith any insurance coverage
required to be and not effected by Tenant or Landlord's paying any premiums
therefor in time to prevent the cancellation or lapse of any such coverage in
force, or any actions of Landlord in connection with any emergency or immediate
threat to persons or property. Nothing contained in this
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Paragraph shall impose upon Landlord a duty to take action under any
circumstances, or liability for any such action taken.
32. ENTIRE AGREEMENT: SEVERABILITY. This Lease, and the schedules and
exhibits attached hereto shall be deemed to contain all of the terms and
conditions agreed upon between the parties with respect to the subject matter
hereof, it being understood that there are no outside representations or
agreements. The invalidity of any provision in this Lease, as determined by a
court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
33. DISCLAIMER OF WARRANTIES. EXCEPT AS SPECIFICALLY SET FORTH IN
THIS LEASE, LANDLORD SPECIFICALLY DISCLAIMS ANY WARRANTY, GUARANTY OR
REPRESENTATION, ORAL OR WRITTEN, PAST OR PRESENT, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, ANY WARRANTY OR REPRESENTATIONS AS TO THE CONDITION,
QUALITY, SAFETY, FREEDOM FROM DEFECTS (WHETHER OR NOT DETECTABLE BY INSPECTION),
MERCHANTABILITY, FITNESS FOR TENANTS INTENDED USE OR ANY OTHER PARTICULAR
PURPOSES OR AS TO THE AVAILABILITY OR EXISTENCE OF ANY UTILITY OR OTHER
GOVERNMENTAL OR PRIVATE SERVICES OR AS TO THE AMOUNT OF TAXES ASSESSED TO THE
PROPERTY. TENANT ACKNOWLEDGES THAT TENANT HAS HAD AN OPPORTUNITY TO EXAMINE THE
PROPERTY AND IS LEASING THE PROPERTY BASED SOLELY ON ITS OWN INDEPENDENT
INVESTIGATIONS AND FINDINGS AND NOT IN RELIANCE ON ANY INFORMATION PROVIDED BY
LANDLORD OR LANDLORD'S AGENTS OR CONTRACTORS. THE PREMISES ARE BEING LEASED "AS
IS", "WHERE IS" AND "WITH ALL FAULTS" AS OF THE COMMENCEMENT DATE, WITHOUT ANY
REPRESENTATION OR WARRANTY WHATSOEVER AS TO CONDITION, FITNESS FOR ANY
PARTICULAR PURPOSE, FREEDOM FROM CONTAMINATION BY HAZARDOUS SUBSTANCES,
COMPLIANCE WITH ZONING OR OTHER LEGAL REQUIREMENTS OF ALL OR ANY PART OF THE
PREMISES, MERCHANTABILITY OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. TENANT AND
LANDLORD AGREE THAT LANDLORD HAS ONLY LIMITED KNOWLEDGE OF THE CONDITION OF THE
PREMISES. LANDLORD HAS MADE NO AGREEMENT TO ALTER, REPAIR OR IMPROVE ANY OF THE
PREMISES.
34. ENVIRONMENTAL CONDITION OF PROPERTY.
(a) CERTAIN ENVIRONMENTAL DISCLOSURES. Tenant hereby
acknowledges that it has reviewed the disclosures contained on Exhibit C,
attached hereto, with respect to certain conditions on the Premises and certain
surrounding areas.
(b) CERTAIN OBLIGATIONS REGARDING HAZARDOUS SUBSTANCES.
(i) CERTAIN DEFINITIONS.
(A) The term "HAZARDOUS SUBSTANCES" shall mean
any product, substance, chemical, material or waste whose presence, nature,
quantity and/or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or
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in combination with other materials expected to be on the Premises, is either:
(i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Landlord to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products or fractions thereof.
(B) The term "APPLICABLE LAW" shall mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Landlord's
engineers and/or consultants, relating to in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance or storage tank), now in effect or which may hereafter
come into effect, and whether or not reflecting a change in policy from any
previously existing policy. Tenant shall, within five (5) business days after
receipt of Landlord's written request, provide Landlord with copies of all
documents and information, including, but not limited to, permits,
registrations, manifests, applications, reports, and certificates, evidencing
Tenant's compliance with any Applicable Law specified by Landlord, and shall
immediately upon receipt, notify Landlord in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Tenant or the
Premises to comply with any Applicable Law.
(C) The term "LOSSES" shall mean any and all
costs and expenses (including, but not limited to, reasonable attorneys' fees),
damages and other losses actually incurred by the party seeking indemnification.
(D) The term "CLAIM OF LIABILITY" shall mean any
and all claims, liabilities, obligations, injuries, Losses or damages suffered
or incurred as a result of (i) any suit, action, legal or administrative
proceeding (including any investigation), or demand asserted, threatened or
instituted by any party, and including but not limited to any governmental
agency or authority, (ii) failure to comply with requirements imposed by all
federal, state and local environmental laws and regulations, including but not
limited to all costs of investigation, remediation or costs otherwise incurred
in complying with applicable laws and regulations and (iii) any and all
judgments, liens, court costs, legal fees, expert witness fees, consultants'
fees, and other costs of discovery and defense, all net of any insurance
proceeds to which the party seeking indemnification is entitled by virtue of
such claim, liability, obligation, loss or damage.
(E) The term "REPORTABLE USE" shall mean (i) the
installation of use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Tenant's being
responsible for the presence in, or about the Premises of a Hazardous Substance
with respect to which any
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Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties.
(ii) HAZARDOUS SUBSTANCES USED BY TENANT. The parties
acknowledge that, during the Term of the Lease, Tenant may use, but may not
generate, produce, treat or dispose of, certain limited types and quantities of
Hazardous Substances on the Premises in accordance with the provisions of this
Paragraph 34; PROVIDED, HOWEVER, that in no event shall Tenant install any
chemical storage tanks on the Premises. These Hazardous Substances, along with
their quantitative limits, as of the Commencement Date are listed in Exhibit D
hereto. Tenant shall provide Landlord no less frequently than every year
(commencing with the Commencement Date) written notification of the ordinary and
customary Hazardous Substances and quantities which Tenant uses, generates,
produces, treats or disposes of on or from the Premises, which notice shall, so
long as the nature of Tenant's business has not changed from that conducted at
the Commencement Date, constitute an amended Exhibit D for the purposes of this
Lease, from and after the date of such notification. So long as Tenant complies
with all other provisions of this Lease and notifies Landlord of Tenant's use in
Tenant's annual amended Exhibit D hereunder, Tenant shall be entitled to use
Hazardous Substances described in and subject to the limitations of clause (ii)
of Paragraph 34(b)(ii), below. Promptly following receipt by Tenant, Tenant
shall provide Landlord with copies of periodic agency hazardous materials, fire
department and water quality inspection reports, and Tenant shall promptly
provide Landlord with copies of hazardous materials collection reports that are
reported to the California Environmental Protection Agency, notwithstanding the
foregoing in this paragraph 34(b)(ii).
(iii) OTHER HAZARDOUS SUBSTANCES. Except as to those
Hazardous Substances listed in Exhibit D in the limited quantities set forth in
Exhibit D, and such Hazardous Substances as are (i) intended for and used for
normal building cleaning, maintenance and repair, and (ii) ordinary and
customary Hazardous Substances and quantities for the nature of business
conducted by Tenant at the Commencement Date (with the parties' acknowledgment
that the specific kinds of Hazardous Substances Tenant uses in the conduct of
its business may change from time to time), Tenant shall not use, generate,
produce, store, bring upon, treat or dispose of any Hazardous Substance on the
Premises without the prior written consent of the Landlord. With regard to
other Hazardous Substances, whether in type or quantity limits, that Tenant
proposes to use on the Premises, Landlord shall, taking into account such
factors as relevant, promptly grant or withhold consent to the proposed use of
such Hazardous Substances in the quantities proposed. In addition, Landlord may
condition its consent to the use or presence of any Hazardous Substance by
Tenant upon Tenant's giving Landlord such additional assurances as Landlord, in
its sole discretion, deems necessary to protect itself, the public, the
Premises, and the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises and/or the deposit of a
reasonable additional Security Deposit (as defined in Paragraph 38 of the
Lease).
(iv) APPLICABLE LAWS. Any handling, use, containment, or
storage by Tenant of Hazardous Substances on the Premises (whether or not such
use is identified on Exhibit D or is otherwise consented to by Landlord), and
Tenant's conduct of its business at the
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Premises, shall be conducted in compliance with all Applicable Laws and the best
industry practice.
(v) RELEASE OF SUBSTANCES. Tenant shall not cause any
Hazardous Substance to be spilled, discharged or released in, on, under or about
the Premises or allow any Hazardous Substance to be spilled, discharged or
released in, on or under the Premises; PROVIDED, HOWEVER, that Tenant shall not
be responsible pursuant to this provision (A) for conditions on or about the
Premises with respect to the Hazardous Substances conditions disclosed in
Exhibit C pertaining to the Superfund remediation described therein (the
"Superfund Remediation"), except to the extent conditions are caused, aggravated
or contributed to by Tenant, or (B) for Hazardous Substances spilled, discharged
or released by Landlord.
(vi) OTHER RESTRICTIONS. Tenant shall not engage in any
activity in, on or about the Premises which constitutes a Reportable Use of
Hazardous Substances without prior written notification to Landlord and
compliance in a timely manner (at Tenant's sole cost and expense) with all
Applicable Law. Tenant shall not cause or allow on the Premises: (A) any
concrete vaults, sumps or containment channels to be used as primary containment
for any liquid containing Hazardous Substances or as secondary containment for
any volatile organic compounds; (B) installation of any underground storage
tanks; or (C) any activity requiring a hazardous waste treatment, storage or
disposal permit under the federal Resource Conservation and Recovery Act or the
California Health and Safety Code Div. 20, Chapter 6.5 (Hazardous Waste
Control).
(vii) DUTY TO INFORM LANDLORD: DUTY TO MONITOR.
(A) If Tenant knows, or has reasonable cause to
believe that a Hazardous Substance, or a condition involving or resulting from
same ("Hazardous Substances Condition"), has come to be located in, on, under or
about the Premises, other than as previously consented to by Landlord, Tenant
shall immediately give written notice of such fact to Landlord. Tenant shall
also immediately give Landlord a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the presence,
spill, release, discharge of or exposure to, any Hazardous Substance or
contamination in, on, or about the Premises, including, but not limited to all
such documents as may be involved in any Reportable Uses involving the Premises.
Tenant shall immediately upon receipt notify Landlord in writing of the
existence of any matter that constitutes a Claim of Liability. In addition,
Tenant shall immediately notify Landlord of and provide a copy of the following
environmental reports or inquiries relating to the Premises: citations,
environmental inquiries, reports filed pursuant to any environmental reporting
requirements imposed by any Applicable Law, including reports filed pursuant to
any Applicable Law relating to underground tanks. Tenant will furnish to
Landlord a copy of any and all environmental reports, correspondence or
inquiries relating to the Premises, including but not limited to all permit
applications, permits and reports, as well as reports concerning conditions on
the Premises, including those which may be characterized as confidential.
(B) Tenant covenants that it shall actively and
diligently monitor all aspects of its operations and activities (and those of
its agents, contractors,
33.
<PAGE>
subcontractors, employees or invitees) which involve in any way the use,
production, generation or other handling of Hazardous Substances on the
Premises. Tenant shall advise Landlord's designated in-house technical
representative of any material changes in operations involving Hazardous
Substances.
(viii) TERMINATION. In addition to its rights under
Paragraph 15 of the Lease:
(A) Landlord shall have the option of terminating
this Lease if at any time Tenant has failed to comply with any of its
obligations under this Paragraph 34; PROVIDED, HOWEVER, that Tenant's
obligations under this Paragraph 34(b)(ix), below, shall survive such
termination of this Lease.
(B) Intentionally omitted.
(ix) INDEMNIFICATION.
(A) TENANT'S INDEMNIFICATION. Tenant shall
indemnify, defend and hold Landlord, its directors, officers, employees, agents,
lenders, successors and assigns harmless from and against any Claim Of Liability
asserted against Landlord or any of the foregoing indemnified parties which
results from, relates to, or arises out of (i) a breach by Tenant of its
obligations under this Paragraph 34, or (ii) the presence of Hazardous
Substances at or on the Premises (whether or not that substance is listed on
Exhibit D or Landlord's consent was given to the use of such substance at the
Premises) during the Term of the Lease (except for (x) such Hazardous Substances
(excluding asbestos) present at or on the Premises at the Commencement Date; (y)
underground migration of any Hazardous Substances to the Premises from adjacent
properties; and (z) Hazardous Substances Conditions at or on the Premises
arising from the activities of Telcom Universal, Inc. in crossing the Premises
or common areas to its premises adjacent to the Premises (PROVIDED HOWEVER,
Tenant shall provide Landlord with immediate notice of any such activity of
which Tenant becomes aware that results in the presence of Hazardous Substances
or a Hazardous Substances Condition at or on the Premises)), or (iii) which
results from, relates to, or arises out of any adverse environmental conditions
or Hazardous Substance Conditions that were caused, aggravated or contributed to
by Tenant or Tenant's agents, employees, invitees, contractors or
subcontractors.
(B) LANDLORD INDEMNITY/SUPERFUND REMEDIATION. As
between, Landlord and Tenant, Landlord shall be responsible for remediation in
accordance with Applicable Laws for the Superfund Remediation as such Superfund
Remediation affects the Premises, except to the extent of any adverse
environmental conditions or Hazardous Substance Conditions that were caused,
aggravated or contributed to by Tenant or Tenant's, agents, employees, invitees,
contractors or subcontractors. Landlord shall indemnify, defend and hold
Tenant, its directors, officers, employees, agents, lenders, successors and
assigns harmless from and against any Claim Of Liability asserted against Tenant
or any of the foregoing indemnified parties which results from, relates to, or
arises out of the presence of Hazardous Substances (excluding asbestos) at or on
the Premises on the Commencement Date.
34.
<PAGE>
(C) SURVIVAL OF INDEMNITIES. The provisions of
this Paragraph 34(b)(ix) shall survive the earlier termination or expiration of
this Lease. No termination, cancellation or release agreement entered into by
Landlord and Tenant shall release Tenant from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Landlord
in writing at the time of such agreement.
(D) DAMAGES. Notwithstanding anything to the
contrary elsewhere in this Lease, no party (or its affiliates) shall, in any
event, be liable to any other party or other indemnified person for
consequential damages, including, but not limited to, loss of revenue or income,
cost of capital, or loss of business reputation or opportunity; PROVIDED,
HOWEVER, Landlord shall in any event be entitled to recover lost rents which
shall not be deemed consequential damages for the purposes herein. Without
limitation, the preceding sentence (other than the proviso) shall not apply to
damages sought to be recovered by a third party (other than an indemnified
person) against such other party or such other indemnified person.
(E) LEGAL PROCEEDINGS AND REMEDIAL ACTIONS. If a
Claim Of Liability:
(i) involves or requires legal defense,
Landlord shall, subject to Tenant's approval, which approval shall not be
unreasonably withheld, designate the person or persons who shall negotiate with
the appropriate government agencies or other third-parties to settle any related
claim; if no settlement is reached, Landlord shall, at its option, control such
legal defense as it deems necessary and appropriate and Tenant shall not
undertake to separately defend any such related claim.
(ii) involves or requires remedial action,
Landlord shall, at its option, determine and control any and all such actions,
of whatever kind and nature, Landlord shall deem necessary or appropriate to
comply with Applicable Laws and to correct any adverse environmental conditions
caused by the presence of Hazardous Substances on the Premises; PROVIDED,
HOWEVER, that to the extent reasonably practicable, Landlord shall control such
remedial action in such a way as to be cost-effective and to minimize
interference with Tenant's operations.
(x) Landlord, at its option, may
require Tenant, at Tenant's sole expense, to retain a qualified environmental
consultant, selected by Tenant and approved by Landlord, which approval shall
not be unreasonably withheld, to perform an environmental audit and assessment
of the premises at the end of the Lease Term or upon early termination of the
Lease. If such environmental audit and assessment indicates the presence of an
adverse environmental condition or Hazardous Substance Condition that was caused
or created by Tenant or that was caused by the presence of Hazardous Substances
during the Lease Term, Landlord at Tenant's sole expense, may retain a
consultant(s), selected by Landlord and approved by Tenant, which approval shall
not be unreasonably withheld, to identify and undertake, in a cost-effective
manner, the remedial action necessary and appropriate to correct such adverse
environmental condition or Hazardous Substance Condition; PROVIDED, HOWEVER,
that if such adverse environmental or Hazardous Substance Condition was caused
or created by the Landlord or was caused by the presence of Hazardous Substances
prior to the Lease Term, the Tenant shall not be required to pay the expenses
for the identification or undertaking of any
35.
<PAGE>
remedial action that the Landlord, at its option, may determine is necessary or
appropriate to correct such adverse environmental condition or Hazardous
Substance Condition.
(xi) Landlord and Landlord's lender
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Tenant with this Lease
and all Applicable Laws, and to employ experts and/or consultants in connection
therewith and/or to advise Landlord with respect to Tenant's activities,
including but not limited to the installation, operation, use, monitoring,
maintenance or removal of any Hazardous Substance or storage tank on or from the
Premises. The costs and expenses of any such inspections shall be paid by the
party requesting same, unless a default or breach of this Lease, violation of
Applicable Law, or a contamination, caused or materially contributed to by
Tenant is found to exist or be imminent, or unless the inspection is requested
or ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In any such case, Tenant shall upon
request reimburse Landlord or Landlord's lender, as the case may be, for the
costs and expenses of such inspections.
35. OPTION TO RENEW.
(a) GRANT OF OPTION. In the event that Tenant is not in
Default and not in breach (unless such breach is cured within the applicable
cure period under this Lease and in no event later than the Option Expiration
Date) hereunder, Tenant shall have two, successive options (the "Renewal
Options"), the first commencing on the expiration of the Term and the second
commencing on the expiration of the Term as extended by the first Renewal
Option, to renew the Term of this Lease for an additional five (5) years each
upon the same terms, covenants and conditions provided herein, with the
exception of Basic Rent which shall be deemed to be the fair market rental value
of the Premises, on the terms and conditions set forth in below. Upon valid
exercise of a Renewal Option and renewal hereunder, "Term" as used in this Lease
shall include the Renewal Term (as defined below) pertaining to such Renewal
Option.
The Renewal Options granted to Tenant are personal to the original
Tenant named herein and cannot be voluntarily or involuntarily assigned or
exercised by any person or entity other than said original Tenant. The Renewal
Options herein granted to Tenant are not assignable, either as part of an
assignment of this Lease or separately or apart therefrom, and the Renewal
Option may not be separated from this Lease in any manner, by reservation or
otherwise.
(b) OPTION PROCEDURE. The following procedure shall be
followed with respect to any Renewal Option:
(i) If after exercising a Renewal Option and before the
commencement of the five-year renewal term of Lease ("Renewal Term"), Tenant is
in material default under this Lease, Landlord (without prejudice to any of its
other rights and remedies) may, at Landlord's option, nullify such Renewal
Option by exercise of its right to terminate this Lease. Tenant shall exercise
a Renewal Option by written notice to Landlord not later than twelve (12) months
prior to the expiration of the initial Term ("Option Expiration Date").
Exercise of the Renewal Option shall not be valid if this Lease shall otherwise
have terminated
36.
<PAGE>
on or before the exercise of the Renewal Option. Also, any Renewal Option must
be exercised as to the entirety of the Premises, and the second Renewal Option
expires and is invalid if the first Renewal Option has not been duly executed
and Tenant is not in possession of the Premises at the conclusion of first
Renewal Term.
(ii) "Fair market rental value" shall mean the projected
going market rent of the Premises as of the commencement of the applicable
Renewal Term, taking into account the best and highest use of the Premises for a
non-renewing tenant permitted for its then current zoning classification and
location of the Premises.
Tenant shall notify Landlord in writing not later
than nine (9) months prior to the expiration of the initial Term if it desires
to negotiate the fair market rental value. The parties shall thereupon
negotiate in good faith in order to reach agreement; and in the event the
parties are unable to reach an agreement during the period that is not more than
nine (9) months and not less than six (6) months prior to the expiration date of
the initial Term, as the case may be, (the "Negotiation Period"), the
determination of fair market rental value shall be made by appraisal as provided
herein.
(iii) If the Landlord and the Tenant do not reach an
agreement as hereinabove provided, the fair market rental value shall be
determined pursuant to the procedure set forth herein and both parties will be
bound by such determination. The parties shall use their best efforts to
complete the appraisal process within sixty (60) days after the expiration of
the Negotiation Period and shall instruct their appraisers to do likewise.
(A) Each party shall within ten (10) days
following the expiration of the Negotiation Period, appoint a licensed,
disinterested M.A.I. Appraiser having substantial experience with comparable
buildings in the county where the Premises are located (a "Qualified Appraiser")
and give written notice of such appointment to the other. If either party fails
to notify the other of the appointment of its Qualified Appraiser within the
time period specified above, then the Qualified Appraiser appointed shall be the
sole appraiser to determine fair market rental value.
(B) It shall be a condition precedent to the
appointment of the Qualified Appraisers for the parties, that such Qualified
Appraisers shall have agreed on a third Qualified Appraiser with qualifications
similar to those required of the first two (2) Qualified Appraisers to act as
the third appraiser hereunder (and such third appraiser shall have agreed to act
in such capacity).
(C) In the event two (2) Qualified Appraisers are
chosen as herein provided, the Qualified Appraisers so chosen shall meet within
ten (10) business days after they are appointed as aforesaid, and, if within ten
(10) business days after such first meeting, the two (2) Qualified Appraisers
fail to come to a mutual determination as to the appropriate fair market rental
value, they themselves shall notify the third Qualified Appraiser. If such two
Qualified Appraisers agree, such agreement shall be the fair market rental
value.
(D) Within ten (10) days after said notice to the
third Qualified Appraiser, each of the three (3) Qualified Appraisers selected
shall state in writing his or her
37.
<PAGE>
respective opinion as to the appropriate fair market rental value, supported by
the reasons therefor with counterpart copies to each party;
(E) The Qualified Appraisers shall arrange for a
simultaneous exchange of such determinations promptly in writing. The opinion
as to the fair market rental value which is the furthest from the middle value
shall be excluded and the fair market rental value for purposes hereof shall be
the average of the remaining two (2) opinions and shall constitute the decision
of the Qualified Appraisers; PROVIDED, HOWEVER, that if both other opinions are
equally distant in opposite directions from the middle value, the middle value
shall constitute the fair market rental value.
(F) In the event of a failure, refusal or
inability of any Qualified Appraiser to act, a successor shall be appointed by
the party who originally appointed the Qualified Appraiser, but in the case of
the third Qualified Appraiser, the third Qualified Appraiser's successor shall
be appointed in the same manner as provided for appointment of the third
Qualified Appraiser. Each party shall pay the fees and expenses of the party's
own Qualified Appraiser and shall share equally the fees and expenses of the
third Qualified Appraiser and all other expenses of the appraisal.
35.1 FIRST RIGHT TO NEGOTIATE FOR ADDITIONAL SPACE. If during
the Term of this Lease, additional space (with respect to the Premises) is
anticipated to become available for lease, which space is currently being leased
by another tenant of Landlord and not subject to any additional rights of such
tenant, Tenant shall have the first right to negotiate an expansion of the space
leased hereunder to include such additional space as set forth in this
paragraph. Landlord shall provide Tenant with notice of the existence of such
potentially leasable space at least 30 days prior to its availability. The
notice shall specify the terms on which Landlord shall be willing to lease such
space to Tenant. Tenant shall have the right to negotiate exclusively with
Landlord on such terms and conditions for such additional space during the 30
day period following Landlord's delivery of such notice. If written agreement
to lease such additional space is not reached between Landlord and Tenant within
such 30 day period, Landlord shall have the right to lease, use or otherwise
dispose of such additional space without any obligation to Tenant hereunder on
monetary terms not substantially more beneficial than that offered to Tenant.
Nothing hereunder shall supersede Landlord's right to retain such available
space and not to lease any such space to a third party.
35.2 RIGHT TO NEGOTIATE PURCHASE OF THE PREMISES.
(a) For so long as the Premises are part of a larger
undivided parcel of property, for the purposes of this Paragraph 35.2,
"Premises" shall refer solely to such entire parcel of property. Landlord will
not sell the Premises to any third person until Tenant has been given written
notice of Landlord's intent to sell the Premises. The notice given to Tenant
shall specify the price and terms of the contemplated sale; and Tenant shall
upon receipt of said notice have the exclusive right to negotiate to purchase
the Premises during the thirty (30) days next ensuing after receipt of said
notice, at the price and upon the terms contained in the notice. If Tenant
neglects or fails to take advantage of this right to negotiate to purchase the
Premises within said thirty (30) day period, then Landlord shall be at liberty
to sell the Premises to any third person upon any terms that Landlord so
desires, provided that the price is at or below
38.
<PAGE>
fifteen (15%) of the price set forth in the aforementioned written notice, for
a period of up to one (1) year without any further obligation under this
Paragraph 35.2.
(b) If during the Term Landlord receives from any third
party an unsolicited bona fide offer to purchase the Premises at a price and
upon terms acceptable to Landlord, Landlord shall give written notice thereof to
Tenant, which notice shall include a copy of the offer to purchase; and Tenant
shall have fifteen (15) days thereafter in which to notify Landlord in writing
that it will purchase the Premises upon the same terms set forth in the notice
from Landlord. Failure of Tenant to so notify Landlord within fifteen (15) days
shall authorize Landlord to sell the Premises to said third party making the
offer on substantially the same terms and conditions as provided in said offer;
PROVIDED, HOWEVER, that Landlord may reduce the sale price for the Premises to
said third party by up to fifteen percent (15%) of the amount set forth in said
offer or increase such price. If the Premises is not sold to the party making
the offer, then Landlord shall give Tenant the same right to purchase the
Premises upon receiving any subsequent unsolicited bona fide offer from any
third party that is acceptable to Landlord. Notwithstanding anything to the
contrary provided herein, the rights granted to Tenant under this paragraph (b)
shall not apply to a sale with respect to which Landlord has given Tenant a
notice under paragraph (a) hereof, both Landlord and Tenant agreeing that
Tenant's rights with respect to such sale shall be governed solely by said
paragraph (a).
(c) Paragraph 35.2 shall not be applicable to a sale or
transfer of the Premises pursuant to a judicial or non-judicial foreclosure
sale, or pursuant to a deed-in-lieu of foreclosure sale. Moreover, Paragraph
35.2 shall be applicable solely to a sale by the party that is the Landlord as
of the Commencement Date.
36. BROKERS. The parties acknowledge that the real estate brokers for
this transaction are Renault & Handley, representing Landlord, Wayne Mascia
Associates, who is representing Tenant. Landlord shall pay the real estate
commission for this transaction as agreed upon between Landlord and Renault &
Handley, with the understanding that Renault & Handley will split the real
estate commission as agreed upon by Landlord and Renault & Handley with Wayne
Mascia Associates on a 50%/50% basis. Except as herein expressly set forth, the
parties acknowledge and agree that neither party has had any dealings with any
other broker or real estate agent so as to entitle such broker or real estate
agent to a commission due under this Lease and each party shall indemnify,
defend and hold harmless the other party from and against any such real estate
commission.
37. SEVERABILITY. The provisions of this Lease shall be severable.
The invalidity of any provision of this Lease as determined by a court of
competent jurisdiction shall in no way affect the validity of any other
provision hereof and this Lease shall be enforceable to the maximum extent under
law.
38. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the
execution of this Lease a security deposit in the amount of $55,334.50 Dollars
(the "Security Deposit") as security for Tenant's faithful performance of
Tenant's obligations under this Lease. If Tenant fails to pay Basic Rent or
Additional Rent due hereunder, or otherwise defaults under this Lease, Landlord
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Landlord or to reimburse or compensate Landlord for
any liability, cost, expense,
39.
<PAGE>
loss or damage (including attorneys' fees) which Landlord may suffer or incur by
reason thereof. If Landlord uses or applies all or any portion of said Security
Deposit, Tenant shall within ten (10) days after written request therefor
deposit moneys with Landlord sufficient to restore said Security Deposit to the
full amount required by this Lease. Landlord shall not be required to keep all
or any part of the Security Deposit separate from its general accounts.
Landlord shall, at the expiration or earlier termination of the Term and after
Tenant has vacated the Premises, return to Tenant (or, at Landlord's option, to
the last assignee, if any, of Tenant's interest herein) within fifteen (15)
days, that portion of the Security Deposit not used or applied by Landlord.
Unless otherwise expressly agreed in writing by Landlord, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Tenant under this Lease.
39. HAZARDOUS SUBSTANCE CONDITIONS. Except as otherwise set forth in
this Lease, to the extent any Hazardous Substance Condition is caused or
materially contributed to by Tenant, or pertains to or involves any Hazardous
Substance for which Tenant is responsible under this Lease, Tenant or, at
Landlord's option Landlord, shall make the investigation and remediation as
required by Applicable Law and Paragraph 34 of the Lease at Tenant's expense,
and this Lease shall continue in full force and effect, but subject to
Landlord's rights under Paragraph 34 of this Lease; PROVIDED, HOWEVER, that
Tenant shall not hereby become responsible for any Hazardous Substance to the
extent Tenant is not otherwise responsible therefor under Paragraph 34.
40. LANDLORD'S ACCESS; SHOWING PREMISES; REPAIRS. Landlord and
Landlord's agents shall have the right to enter the Premises at any time, in the
case of an emergency, at reasonable times upon twenty-four (24) hours' notice to
Tenant for the purpose of showing the same to prospective purchasers, lenders,
or lessees (but for potential lessees, only during the last nine months of the
Term or the extended Term, or if Tenant is otherwise in Default under the
Lease), and making such alterations, repairs, improvements or additions to the
Premises or the building of which they are a part, as Landlord may reasonably
deem necessary. Landlord may at any time place on or about the Premises or
building any ordinary "For Sale" signs and Landlord may at any time during the
last one hundred twenty (120) days of the term hereof place on or about the
Premises any ordinary "For Lease" signs. All such activities of Landlord shall
be without abatement of rent or liability to Tenant.
41. TENANCY STATEMENT. Tenant shall within ten (10) days after
written notice from Landlord execute, acknowledge and deliver to Landlord a
statement in writing in form similar to the then most current "Tenancy
Statement" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by Landlord.
If Landlord desires to finance, refinance, or sell the Premises,
any part thereof, or the Building of which the Premises are a part, Tenant shall
deliver to any potential lender or purchaser designated by Landlord such
financial statements of Tenant as may be reasonably required by such lender or
purchaser, including but not limited to Tenant's financial statements for the
past three (3) years. All such financial statements shall be received by
Landlord and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
40.
<PAGE>
42. TIME OF ESSENCE. Time is of the essence.
43. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
44. CHOICE OF LAW. This Lease shall be governed and interpreted by
the laws of the State of California.
45. MERGER. The voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation thereof, or a termination by Landlord, shall not work a
merger, and shall, at the option of Landlord, terminate all or any existing
subtenancies or may, at the option of Landlord, operate as an assignment to
Landlord of any or all of such subtenancies.
46. MULTIPLE TENANT PROPERTY. The Premises are part of a larger group
of buildings and land herein referred as to the "Property". Tenant agrees to
the rules and regulations attached hereto as Exhibit A-2. Tenant agrees that it
will abide by, keep and observe all reasonable rules and regulations which
Landlord may make from time to time for the management, safety, care and
cleanliness of the building and grounds, the parking of vehicles and the
preservation of good order therein as well as for the convenience of other
occupants and tenants of the Property; PROVIDED, HOWEVER, that such rules and
regulations do not conflict with the terms of this Lease (or materially
interferes with the permitted uses of the Premises under Paragraph 28), and in
the event of such a conflict the terms of this Lease shall govern.
47. EASEMENTS. Landlord reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Landlord deems
necessary or desirable, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Tenant and taking into account Tenant's security requirements. Tenant shall
sign any of the aforementioned documents upon request of Landlord and failure to
do so shall constitute a material breach of this Lease.
41.
<PAGE>
IN WITNESS WHEREOF, this Lease has been duly executed by Landlord and
Tenant as of the date first above written.
WITNESSES: LANDLORD:
TELEDYNE INDUSTRIES, INC.
By: By:
-------------------------------- --------------------------------
Print Name: Print Name:
------------------------ ------------------------
By: Its:
-------------------------------- -------------------------------
Print Name:
------------------------
WITNESSES: TENANT:
CLONTECH LABORATORIES, INC.
By: By: /s/ Ken Fong
-------------------------------- --------------------------------
Print Name: Print Name: Kenneth Fong, CEO
------------------------ ------------------------
By: Its: 4/30/97
-------------------------------- -------------------------------
Print Name:
------------------------
42.
<PAGE>
EXHIBIT A-2
RULES AND REGULATIONS
At the Commencement Date, Landlord has not promulgated rules and regulations
under Paragraph 46. Landlord reserves the right to promulgate such rules and
regulations at a later date in accordance with such Paragraph 46.
1.
<PAGE>
EXHIBIT B
ASBESTOS REMEDIATION TASKS
The items shown with "**" on the attached chart are incorporated by reference.
1.
<PAGE>
TABLE I - SUMMARY OF KNOWN AND ASSUMED
ASBESTOS-CONTAINING MATERIALS AT
TELEDYNE, INC., 1290 TERRA BELLA AVENUE
MOUNTAIN VIEW, CALIFORNIA
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ESTIMATED
ACM TYPE ACM APPLICATIONS/LOCATIONS PERCENT ASBESTOS QUANTITY
(SQ. FT.)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1" by 1" Gray Women's Restroom West Side Tile: ND; Mastic: 2% Chrysotile 585
Ceramic Tile w/
Brown Mastic
-------------------------------------------------------------------------------------------------
4" by 4" Men's Restroom, West Side Tile: ND; Mastic; 3% Chrysotile 140
Ceramic Tile
w/Dark Brown
Mastic
-------------------------------------------------------------------------------------------------
Cement Panels Around Perimeter of Roof 15% Chrysotile 2,816
-------------------------------------------------------------------------------------------------
Flashing Shed Roof, Entrance Overhang 5-15% Chrysotile 2,700
Roofs and Main Roof
-------------------------------------------------------------------------------------------------
** White/Gray tape Roof Top-HVAC Units 2% Chrysotile; Assumed* 220
-------------------------------------------------------------------------------------------------
Joint Compound Telephone Room, East Side Joint compound: < 1% 150
-------------------------------------------------------------------------------------------------
Joint Compound Stairwell to Roof 2% Chrysotile 200
-------------------------------------------------------------------------------------------------
** Pipe Elbow Mudded Elbow on Domestic 15% Chrysotile 36 Elbows(1)
Insulation Water Lines, Attic and
Chiller Room
-------------------------------------------------------------------------------------------------
** Pipe Elbow On Chilled Water Lines, 3% Chrysotile 24 Elbows
Insulation Chiller Room
-------------------------------------------------------------------------------------------------
** Pipe Fitting Chilled Water Lines West and 2% Chrysotile 12 Fittings
Insulation East Attics
-------------------------------------------------------------------------------------------------
** Pipe Fitting Heating Hot Water Lines in Assumed 2 Fittings
Insulation Chiller Room
-------------------------------------------------------------------------------------------------
** White 9" by 9" Throughout East Side Building Tile: 2% Chrysotile; Mastic: ND 10,000
Floor Tile
w/Black Mastic
-------------------------------------------------------------------------------------------------
White Roof-Top Vent Covers 20% Chrysotile; Assumed 12 LF
Caulk/Tape
-------------------------------------------------------------------------------------------------
</TABLE>
(1) Additional insulated domestic fittings may be located within restroom
walls.
* All flashing materials, caulking and white/gray tape on roof are assumed
to contain asbestos.
1.
<PAGE>
EXHIBIT C
CERTAIN ENVIRONMENTAL DISCLOSURES; ASBESTOS DISCLOSURE
In 1982, soil and groundwater contamination was detected at the 1290 and
1300 Terra Bella Avenue facility, which facility includes the Premises under
this Lease. A comprehensive investigation of the soil and groundwater at the
facility was conducted under the supervision and direction of the California
Regional Water Quality Control Board, San Francisco Bay Region (the "RWQCB").
The investigation detected releases of volatile organic compounds ("VOCs"),
including the hazardous substances trichloroethylene, 1,2-dichloroethylene,
1,1-dichloroethylene, trichloroethane, 1,1-dichloroethane, freon 113,
perchloroethylene, and vinyl chloride. The investigation was conducted by
Teledyne Semiconductor, Inc. In June 1986, the U.S. Environmental Protection
Agency listed the Teledyne Semiconductor, Inc. facility site on the National
Priorities List of the Comprehensive Environmental Response, Compensation and
Liability Act (commonly referred to as Superfund).
Based on the results of Remedial Investigation/Feasibility Study, the
RWQCB issued Site Cleanup Requirements Order on February 21, 1991 (Order No.
91-025), and as amended on December 14, 1994 (Order No. 94-184). Pursuant to an
approved Remedial Action Plan, Teledyne has installed and at present operates 29
groundwater monitoring wells and two extraction wells at the property. The
extraction wells remove groundwater which is then treated at an onsite treatment
system to remove the VOCs. The treated groundwater is then discharged into the
storm sewer pursuant to a RWQCB permit.
For your reference, California Health & Safety Code Section 25359.7(a)
provides:
Any owner of nonresidential real property who knows, or has reasonable
cause to believe, that any release of hazardous substance has come to be located
on or beneath that real property shall, prior to the sale, lease, or rental of
the real property by that owner, give written notice of that condition to the
buyer, lessee, or renter of the real property. Failure of the owner to provide
written notice when required by this subdivision to the buyer, lessee, or renter
shall subject the owner to actual damages and any other remedies provided by the
law. In addition, where the owner has actual knowledge of the presence of any
release of a material amount of a hazardous substance and knowingly and
willfully fails to provide written notice to the buyer, lessee, or renter, as
required by this subdivision, the owner is liable for a civil penalty not to
exceed five thousand dollars ($5,000) for each separate violation.
Tenant acknowledges receipt of a copy of the Final Report - Asbestos
Management Services dated February 21, 1997 and Final Operations and Maintenance
Plan for Asbestos Management dated March 25, 1997 of Pinnacle Environmental,
Inc., which are incorporated herein.
1.
<PAGE>
EXHIBIT D
HAZARDOUS SUBSTANCES LIMITATIONS
[TO BE APPENDED]
1.
<PAGE>
EXHIBIT D
CHEMICAL INVENTORY FOR TABLE 9-A, 1991 UNIFORM BUILDING CODE 1.1
COMBUSTIBLE LIQUID / 3.3 FLAMMABLE LIQUID
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMBUSTIBLE LIQUID 1.1 FLAMMABLE LIQUID 3.3
STORAGE BLDG LAB -----------------------------------------------------------------
CHEMICAL AMOUNT # # II(G) III-A(g) III-B(g) I-A(g) I-B(g) I-C(g)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,4 Dioxane 200 ml 2 10 200
- ----------------------------------------------------------------------------------------------------------------------------------
1-Methylimidazole 1 L 2 10 1,000
- ----------------------------------------------------------------------------------------------------------------------------------
2,4 Dinitro-fluorobenzene 80 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
2-Butanol 1 L 2 10 1,000
- ----------------------------------------------------------------------------------------------------------------------------------
3,3' Diamino-N-methyl- 50 g 2 10 50
dipropylamine
- ----------------------------------------------------------------------------------------------------------------------------------
3-Amino-1,2 Methozyacridine 100 g 2 10 100
- ----------------------------------------------------------------------------------------------------------------------------------
4-Dimethylaminopyridine 10 g 2 10 10
(DMAP)
- ----------------------------------------------------------------------------------------------------------------------------------
6,9-Dichloro-2- 30 g 2 10
methoxyacridine
- ----------------------------------------------------------------------------------------------------------------------------------
6-Amino-1-hexanol 100 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
6-Chloro-1-hexanol 25 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Acetic Anhydride 3 kg 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Acryloyl chloride 10 g 2 10 10
- ----------------------------------------------------------------------------------------------------------------------------------
Adenosine* 300 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Agarose 1 kg 2 14
- ----------------------------------------------------------------------------------------------------------------------------------
Aminocaproic acid 200 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
?? 25 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
BORANE-THL complex 100 ml 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Bromobutrylnitrile 700 g 2 10 700
- ----------------------------------------------------------------------------------------------------------------------------------
Carbonyldiimidazole 100 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
CE-tretraisopropyl- 200 g 2 10
phosphorodiamidite
- ----------------------------------------------------------------------------------------------------------------------------------
Cholesteryl chloroformate 100 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Citric Acid 450 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Cytidine 300 g 2 10 300
- ----------------------------------------------------------------------------------------------------------------------------------
d-Biotin* 100 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Diamino-octane 30 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Dichloroethane 500 ml 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Dicyclohexylcarbodiimide 200 g 2 10 200
- ----------------------------------------------------------------------------------------------------------------------------------
Diethylmalonate 2 kg 2 10 2,000
- ----------------------------------------------------------------------------------------------------------------------------------
Diisopropylethyl amine 500 ml 2 10 500
- ----------------------------------------------------------------------------------------------------------------------------------
Dimethoxytrityl Chloride 400 g 2 10
(DMTCL) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Dithiolthreitol (3) 15 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
diUTP* 1 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Ethyl trifluoracetate (1) 1 kg 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Ethyelene diamine 300 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Fluorescein isothiocyanate 60 g 2 10
(FITC) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
???oc-CI (1) (5) 500 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Fmoc-glycine* 10 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Formaldehyde** 5.8 L 2 14
- ----------------------------------------------------------------------------------------------------------------------------------
Glacial Acetic Acid 5 L 2 10 5,000
- ----------------------------------------------------------------------------------------------------------------------------------
Guanosine 300 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Hexxamethylsilazane (1) 1.5 L 2 10 1,500
- ----------------------------------------------------------------------------------------------------------------------------------
Hydrazine (anhydrous) (2) (5) 200 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Iodine (1) 600 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Levulnic acid (1) 200 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMBUSTIBLE LIQUID 1.1 FLAMMABLE LIQUID 3.3
STORAGE BLDG LAB -----------------------------------------------------------------
CHEMICAL AMOUNT # # II(G) III-A(g) III-B(g) I-A(g) I-B(g) I-C(g)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lithium aluminum hydride (1) 125 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Lithium chloride* 50 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Lithium chloride* (3) 50 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Mercuric acetate (1) (2) 100 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
N-hydroxysuccinimide (3) 200 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
p- Toluoyl Chloride (1) (5) 250 ml 2 10 250
- ----------------------------------------------------------------------------------------------------------------------------------
p-Anisylchlorodiphenyl 100 g 2 10
methane
- ----------------------------------------------------------------------------------------------------------------------------------
p-Nitrophenol (3) 10 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Phenoxyacethyl chloride (1) 250 g 2 10 250
(5)
- ----------------------------------------------------------------------------------------------------------------------------------
???dine (6) 100 ml 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
Potasium bicarbonate 500 g 2 10 500
- ----------------------------------------------------------------------------------------------------------------------------------
Potasium Tetrachloropalladate 1 g 2 10 1
(1)
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Acetate (anhydrous)* 100 g 2 10
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING 2 TOTAL (GRAMS) 5,000 2,750 3,670 0 2,101 50
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING 2 TOTAL (GALLONS) 1.32 0.73 0.97 0.00 0.56 0.01
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
1. The above quantities were checked as of 3/17/97 Inventory.
2. Building 4 on Fabian Way and Double Starred (**) items in Building 2 will
relocate to 1290 Tera Bella in Mountain View (Building 6).
3. Starred Items (*) = Non-Hazardous Materials (Per Dr. Tom Smith, 1/95)
4. All Storage Amounts are converted to Grams (g).
5. Abbreviations:
CB = Combustible OX = Oxidizer WR - Water Reactive
FS = Flammable Solid PY = Pyrophoric NH = Non-Hazardous
FL = Flammable Liquid RE = Reactive
2.
<PAGE>
EXHIBIT D
(CONTINUED)
CHEMICAL INVENTORY FOR TABLE 9-A, 1991 UNIFORM BUILDING CODE 1.1
COMBUSTIBLE LIQUID / 3.3 FLAMMABLE LIQUID
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMBUSTIBLE LIQUID 1.1 FLAMMABLE LIQUID 3.3
STORAGE BLDG LAB -----------------------------------------------------------------
CHEMICAL AMOUNT # # II(g) III-A(g) III-B(g) I-A(g) I-B(g) I-C(g)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Acetic Acid 500 g 4 16 500
- ----------------------------------------------------------------------------------------------------------------------------------
Acetic Acid, Glacial (1) 23 g 4 19 23
- ----------------------------------------------------------------------------------------------------------------------------------
Acetonitrile 65 L 4 19 65,000
- ----------------------------------------------------------------------------------------------------------------------------------
Acrylamide (5) (6) 6.6 kg 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Agarose 378 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Agarose 468 g 4 16 468
- ----------------------------------------------------------------------------------------------------------------------------------
Agarose 930 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Ammonium Persulfate (1) 162 g 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Bis-Acrylamide 915 g 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Bromophenol 16 g 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Bromophenol Blue* 40 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Cacodylic Acid 77 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Chloroform (6) 170 ml 4 17
- ----------------------------------------------------------------------------------------------------------------------------------
Chloroform (6) 19.4 g 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Diathol Amine (1) 32 kg 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Dichloromethane 9 L 4 19 9,000
- ----------------------------------------------------------------------------------------------------------------------------------
Diethanol 737 g 4 20
- ----------------------------------------------------------------------------------------------------------------------------------
Diethanolamine (6) 434 g 4 17
- ----------------------------------------------------------------------------------------------------------------------------------
EDTA 0.5M 1 L 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Ethanol 1 L 4 20 1,000
- ----------------------------------------------------------------------------------------------------------------------------------
Ethidium Bromide (3) (5) 11 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Formaldehyde 8.4 g 4 20
- ----------------------------------------------------------------------------------------------------------------------------------
Formaldehyde (3) 2 L 4 18 2,000
- ----------------------------------------------------------------------------------------------------------------------------------
Formamide 25 ml 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Formamide 912 ml 4 18 912
- ----------------------------------------------------------------------------------------------------------------------------------
Formamide 950 ml 4 20 950
- ----------------------------------------------------------------------------------------------------------------------------------
Glycerol* 38 ml 4 20
- ----------------------------------------------------------------------------------------------------------------------------------
Guanadine Thiocyanate* 3.6 kg 4 17
- ----------------------------------------------------------------------------------------------------------------------------------
Guanadine Thiocyanate* 200 g 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Guanidine 400 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Guanidine Thiocyanate* 30 kg 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Hydrochloric Acid (3) 3.5 L 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Iso-Prophyl Alcohol 2 L 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Isoamyl Alcohol 500 ml 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Kanamycin Sulfate 2 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Arginine, HCL* 28.9 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Histidine HCL* 2.4 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Leucine* 2.6 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Lycine* 27.4 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Methionine* 9 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Phenylalanine* 22.4 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Threonine* 31 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Trytophan* 14 mg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Tyrosisne* 77 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
L-Valine* 43 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Lauroyl Sarcosine 530 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Lauryl Sulfate* 700 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Magnesium Chloride* (3) 1.7 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Magnesium Chloride* (3) 100 ml 4 19 100 100
- ----------------------------------------------------------------------------------------------------------------------------------
Methanol 14 L 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMBUSTIBLE LIQUID 1.1 FLAMMABLE LIQUID 3.3
STORAGE BLDG LAB -----------------------------------------------------------------
CHEMICAL AMOUNT # # II(g) III-A(g) III-B(g) I-A(g) I-B(g) I-C(g)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Phenol 375 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Polyethelyne Glycol 21 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Potasium Phospate, Monobasic* 4.3 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Pyridine 21 L 4 19 21,000
- ----------------------------------------------------------------------------------------------------------------------------------
Silica (6) 1173 g 4 20
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Acetate* 4 kg 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Acetate* 2064 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Acetate* 333 g 4 20
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Azide* 8.8 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Azide* 93.5 kg 4 20
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Bicarbonate* 6.3 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Carbonate* 4.7 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Carbonate* (3) 4.7 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Chloride* 200 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Chloride* (3) 3.8 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Citrate* 300 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Citrate* 1.6 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Hydroxide (1) 11.3 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Hydroxide (1) 400 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Iodide 1.8 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Phosphate (3) 5.8 kg 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Phosphate (3) 15.4 kg 4 20
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Phosphate, Dibasic* (3) 2.6 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Phosphate, Monobasic* (3) 167 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Sucrose 190 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Tetracyline HCL* 93.6 g 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Triethylamine 2 L 4 19 2,000
- ----------------------------------------------------------------------------------------------------------------------------------
Tris* 18.7 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Tryptone* 7.8 kg 4 18
- ----------------------------------------------------------------------------------------------------------------------------------
Urea 12.2 kg 4 19
- ----------------------------------------------------------------------------------------------------------------------------------
Urea (1) 504 g 4 16
- ----------------------------------------------------------------------------------------------------------------------------------
Yeast Nitrogen Base (No Amino 3.1 kg 4 18
Acid)*
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING 4 TOTAL (GRAMS) 2,523 2,862 0 100 97,468 100
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING 4 TOTAL (GALLONS) 0.67 0.76 0.00 0.03 25.75 0.03
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
1. The above quantities were checked as of 3/17/97 Inventory
2. Building 4 on Fabian Way and Double Starred (**) items in Building 2 will
relocate to 1290 Tera Bella in Mountain View (Building 6).
3. Starred Items (*) = Non-Hazardous Materials (Per Dr. Tom Smith, 1/95)
4. All Storage Amounts are converted to Grams (g).
5. Abbreviations:
CB = Combustible OX = Oxidizer WR - Water Reactive
FS = Flammable Solid PY = Pyrophoric NH = Non-Hazardous
FL = Flammable Liquid RE = Reactive
4.
<PAGE>
EXHIBIT D
(CONTINUED)
CHEMICAL INVENTORY FOR TABLE 9-A, 1991 UNIFORM BUILDING CODE 1.1
COMBUSTIBLE LIQUID / 3.3 FLAMMABLE LIQUID
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMBUSTIBLE LIQUID 1.1 FLAMMABLE LIQUID 3.3
CHEMICAL STORAGE BLDG LAB -----------------------------------------------------------------
AMOUNT # # II(g) III-A(g) III-B(g) I-A(g) I-B(g) I-C(g)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2-Mercaptoethanol 100 ml 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
2-Naphthol 100 g 5 204 100
- ----------------------------------------------------------------------------------------------------------------------------------
3-Methyl-1 Buthanol 2 L 5 201 2,000
- ----------------------------------------------------------------------------------------------------------------------------------
8-Hydroxy-guinoline 300 ml 5 183
- ----------------------------------------------------------------------------------------------------------------------------------
8-Methyoxypsoralen 3 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Acetone 4 L 5 184 4,000
- ----------------------------------------------------------------------------------------------------------------------------------
Acrylamide 250 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Acrylamide 100 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Agar 500 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Agarose 245 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Agarose 2.5 kg 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Ambalite XAD-16 900 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Ammonium Persulfate 100 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Bis-Acrylamide 10 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
BSA 200 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
???? Alcohol 1 L 5 201 1,000
- ----------------------------------------------------------------------------------------------------------------------------------
Caffeine 500 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
DEAE Cellulose 50 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Dextran So4 50 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Dextrose 200 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Dimethyl Sulfoxide 500 ml 5 184
- ----------------------------------------------------------------------------------------------------------------------------------
DTT 100 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
E+OH 500 ml 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
EDTA 3 kg 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
EGTA 60 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Ethanol 95% 4 L 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Ethidium Bromide 1 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Ethyl Ether 1 L 5 201
- ----------------------------------------------------------------------------------------------------------------------------------
Fformic Acid 100 ml 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
FiColl* 25 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Formaldehyde 500 ml 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Formaldehyde 200 ml 5 184
- ----------------------------------------------------------------------------------------------------------------------------------
Formamide* 500 ml 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Formamide, Ultra Pure* 300 ml 5 201
- ----------------------------------------------------------------------------------------------------------------------------------
Formic Acid 500 ml 5 203
- ----------------------------------------------------------------------------------------------------------------------------------
????midine Thiocyanete 20 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Hexadecyl Tri-methylammonium 50 gm 5 201
Bromide
- ----------------------------------------------------------------------------------------------------------------------------------
Hydrochloric Acid 200 ml 5 184
- ----------------------------------------------------------------------------------------------------------------------------------
Hydrochloric Acid 300 ml 5 203
- ----------------------------------------------------------------------------------------------------------------------------------
Iso-Prophyl Alcohol 3 L 5 184
- ----------------------------------------------------------------------------------------------------------------------------------
Isoamyla Alcohol 500 ml 5 181 500
- ----------------------------------------------------------------------------------------------------------------------------------
Isopropanol 500 ml 5 181 500
- ----------------------------------------------------------------------------------------------------------------------------------
Isopropanol 2.5 L 5 204 2,500
- ----------------------------------------------------------------------------------------------------------------------------------
Isoprophyl Alcohol 10 L 5 201 10,000
- ----------------------------------------------------------------------------------------------------------------------------------
Kilorose* 300 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Kilorose* 400 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Magesium Sulfate* 500 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Magnesium Chloride* (3) 600 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Methanol 100 ml 5 184 100 100
</TABLE>
5.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMBUSTIBLE LIQUID 1.1 FLAMMABLE LIQUID 3.3
CHEMICAL STORAGE BLDG LAB -----------------------------------------------------------------
AMOUNT # # II(g) III-A(g) III-B(g) I-A(g) I-B(g) I-C(g)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mineral Oil 1 L 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Mineral Oil 500 mls 1 L 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
N Lauryol Sarcosine 50 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
N-Buthanol 500 ml 5 181 500
- ----------------------------------------------------------------------------------------------------------------------------------
N-Buthanol 500 ml 5 204 500
- ----------------------------------------------------------------------------------------------------------------------------------
???13 Persulfate 20 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Para Formaldehyde 500 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
PEG 8000 900 g 5 201
- ----------------------------------------------------------------------------------------------------------------------------------
PEG 8000 300 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Peptone 1.5 kg 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Phosphoric Acid GR 500 ml 5 203
- ----------------------------------------------------------------------------------------------------------------------------------
Piperidine 500 g 5 201 500
- ----------------------------------------------------------------------------------------------------------------------------------
Polyethylene Glycole (PEG) 450 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Polyvinyl-Pyrrolidone (PVP) 300 gm 5 201
- ----------------------------------------------------------------------------------------------------------------------------------
Potassium Hydroxide 400 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Reagent Alcohol 20 L 5 184 20,000
- ----------------------------------------------------------------------------------------------------------------------------------
Reagent Alcohol 4.5 gal 5 201 17,033
- ----------------------------------------------------------------------------------------------------------------------------------
Repel Silane 500 ml 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
SDS 500 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Sec-Butyl Alcohol (2- 4 L 5 201 4,000
Buthanol)
- ----------------------------------------------------------------------------------------------------------------------------------
Sephadex G-25 50 ml 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Sephadex G-50 20 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Silver Nitrate 50 g 5 184
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Acetate* 1 kg 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Flouride (6) 100 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Hydroxide 300 g 5 184
- ----------------------------------------------------------------------------------------------------------------------------------
Sodium Hydroxide 300 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Sorbitol 100 g 5 201
- ----------------------------------------------------------------------------------------------------------------------------------
Sorbitol 100 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Sucrose 500 g 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Sucrose 200 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Sucrose 40 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Sucrose 100 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Trichloro-Acedic Acid 25 g 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
Trizma Base 5 kg 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Urea 4 kg 5 181
- ----------------------------------------------------------------------------------------------------------------------------------
Urea 2 kg 5 204
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING 5 TOTAL (GRAMS) 2,500 100 0 41,133 500 19,100
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING 5 TOTAL (GALLONS) 0.66 0.03 0.00 10.87 0.13 5.05
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMBUSTIBLE LIQUID 1.1 FLAMMABLE LIQUID 3.3
CHEMICAL STORAGE BLDG LAB -----------------------------------------------------------------
AMOUNT # # II(g) III-A(g) III-B(g) I-A(g) I-B(g) I-C(g)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
COMPANY TOTAL (GRAMS) 10,023 5,712 3,670 41,233 100,069 19,250
- ----------------------------------------------------------------------------------------------------------------------------------
COMPANY TOTAL (GALLONS) 2.65 1.51 0.97 10.89 26.44 5.09
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
1. The above quantities were checked as of 3/17/97 Inventory
2. Building 4 on Fabian Way and Double Starred (**) items in Building 2 will
relocate to 1290 Tera Bella in Mountain View (Building 6).
3. Starred Items (*) = Non-Hazardous Materials (Per Dr. Tom Smith, 1/95)
4. All Storage Amounts are converted to Grams (g).
5. Abbreviations:
CB = Combustible OX = Oxidizer WR - Water Reactive
FS = Flammable Solid PY = Pyrophoric NH = Non-Hazardous
FL = Flammable Liquid RE = Reactive
6.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 12, 1999, except
as to the subsequent event described in Note 16 which is as of ,
1999, relating to the consolidated financial statements of Clontech
Laboratories, Inc., which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedule for the three
years ended December 31, 1998 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the consolidated
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
February 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,280
<SECURITIES> 2,000
<RECEIVABLES> 5,709
<ALLOWANCES> 284
<INVENTORY> 7,056
<CURRENT-ASSETS> 30,802
<PP&E> 13,180
<DEPRECIATION> 6,126
<TOTAL-ASSETS> 40,063
<CURRENT-LIABILITIES> 12,085
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 17,262
<TOTAL-LIABILITY-AND-EQUITY> 40,063
<SALES> 46,814
<TOTAL-REVENUES> 47,811
<CGS> 14,186
<TOTAL-COSTS> 14,945
<OTHER-EXPENSES> 25,975
<LOSS-PROVISION> 191
<INTEREST-EXPENSE> 1,145
<INCOME-PRETAX> 6,630
<INCOME-TAX> 2,584
<INCOME-CONTINUING> 4,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,046
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.32
</TABLE>
